15 october 2012 company announcements office 4 · 15 october 2012 . company announcements office ....

Indo Mines Limited ABN 40 009 245 210

68 South Terrace, South Perth WA 6151

Ph: + 61 8 9474 7710 Fax: +61 8 93681780

15 October 2012 Company Announcements Office ASX Limited 4th Floor 20 Bridge Street Sydney NS 2000 Dear Sir Notice of General Meeting – Thursday, 15 November 2012 Please find attached hereto a copy of the Notice of General Meeting, including Explanatory Memorandum and Proxy Form, in relation to the proposed placement of shares to the Rajawali Group, to be held on Thursday, 15 November 2012, as dispatched to shareholders today. Yours sincerely

Stacey Apostolou Company Secretary

INDO MINES LIMITED ABN 40 009 245 210 NOTICE OF GENERAL MEETING

A General Meeting of the Company will be held at the Celtic Club, 48 Ord Street, West Perth, Western Australia on Thursday, 15 November 2012 at 1.00pm.

This Notice of General Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their accountant, solicitor or other professional adviser prior to voting. The Independent Expert has concluded that the transaction the subject of Resolution 1 of the General Meeting is fair and reasonable to non-associated Shareholders. All Shareholders should refer to the Independent Expert’s Report for further discussion about Resolution 1. The Independent Expert’s Report is enclosed with this Notice of Meeting. Should you wish to discuss any matter please do not hesitate to contact the Company Secretary by telephone on (08) 9474 7710.

INDO MINES LIMITED ABN 40 009 245 210

NOTICE OF GENERAL MEETING

Notice is hereby given that a general meeting of shareholders of Indo Mines Limited (“Company”) will be held at the Celtic Club, 48 Ord Street, West Perth, Western Australia on Thursday, 15 November 2012 at 1.00pm (“General Meeting”).

The Explanatory Memorandum to this Notice of General Meeting provides additional information on matters to be considered at the General Meeting. The Explanatory Memorandum and Proxy Form are part of this Notice of General Meeting.

The Directors have determined pursuant to regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered as Shareholders of the Company on Tuesday, 13 November 2012 at 1.00pm.

Terms and abbreviations used in this Notice and Explanatory Memorandum are defined in Schedule 1.

AGENDA

1. Resolution 1 – Proposed placement of Shares To consider and, if thought fit, to pass with or without amendment, the following resolution as an ordinary resolution:

“That, for the purposes of item 7 of section 611 of the Corporations Act and for all other purposes, Shareholders approve the acquisition of a relevant interest in the Company’s voting shares by the issue and allotment of 250,000,000 new Shares to Yogya Metals & Mining Limited and Java Metals & Mining Limited (“the Subscribers”) (companies associated with Rajawali Group International Limited) on the terms and conditions in the Explanatory Memorandum.”

Voting Exclusion

The Company will disregard any votes cast on this Resolution by the Subscribers, Rajawali Group International Limited (“Rajawali”) and any of their Associates. However, the Company will not disregard a vote if:

(a) it is cast by the person as proxy for a person who is entitled to vote, in accordance with directions on the Proxy Form; or

(b) it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides.

2. Resolution 2 – Election of Peter John Chambers as a Director To consider and, if thought fit, to pass with or without amendment, the following resolution as an ordinary resolution:

“That, subject to Resolution 1 being passed and for all other purposes, Mr Peter John Chambers, being eligible and having consented to act, be elected as a Director with effect on and subject to Completion.”

3. Resolution 3 – Election of Darjoto Setyawan as a Director To consider and, if thought fit, to pass with or without amendment, the following resolution as an ordinary resolution:

“That, subject to Resolution 1 being passed and for all other purposes, Mr Darjoto Setyawan, being eligible and having consented to act, be elected as a Director with effect on and subject to Completion.”

BY ORDER OF THE BOARD

Stacey Apostolou Company Secretary Dated: 10 October 2012

INDO MINES LIMITED ABN 40 009 245 210

EXPLANATORY MEMORANDUM

1. Introduction This Explanatory Memorandum has been prepared for the information of Shareholders in connection with the business to be conducted at the General Meeting to be held at the Celtic Club, 48 Ord Street, West Perth, Western Australia on Thursday, 15 November 2012 at 1.00pm.

This Explanatory Memorandum should be read in conjunction with and forms part of the accompanying Notice. The purpose of this Explanatory Memorandum is to provide information to Shareholders in deciding whether or not to pass the Resolutions set out in the Notice.

This Explanatory Memorandum includes the following information to assist Shareholders in deciding how to vote on the Resolution:

Section 2: Action to be taken by Shareholders

Section 3: Background

Section 4: Material terms of the Subscription Agreement

Section 5: Overview of Rajawali

Section 6: Impact on Indo Mines

Section 7: Advantages and disadvantages of issuing the Shares

Section 8: Independent Expert’s Report

Section 9: Directors’ Recommendations

Section 10: Resolution 1 – Corporations Act, Listing Rules and Regulatory Information

Section 11: Resolutions 2 and 3 – Election of Directors

Schedule 1: Definitions

Schedule 2: Capital structure and voting power

Schedule 3: Pro forma balance sheet

Annexure A: Independent Expert’s Report

2. Action to be taken by Shareholders Shareholders should read the Notice and this Explanatory Memorandum carefully before deciding how to vote on the Resolutions.

A Proxy Form is attached to the Notice. This is to be used by Shareholders if they wish to appoint a representative (a "proxy") to vote in their place. All Shareholders are invited and encouraged to attend the General Meeting or, if they are unable to attend in person, sign and return the Proxy Form to the Company in accordance with the instructions thereon. Lodgement of a Proxy Form will not preclude a Shareholder from attending and voting at the General Meeting in person.

3. Background 3.1 Subscription Agreement

On 23 September 2012, Indo Mines entered into a subscription agreement (“Subscription Agreement”) with Rajawali whereby, subject to certain conditions, Rajawali (or its nominee) agreed to subscribe for 250,000,000 Shares at $0.20 each per Share to raise $50 million (before associated costs). At the date of this Notice, Rajawali has advised the Company that the Subscribers will subscribe for the Shares (as the nominee of Rajawali). The Subscribers are incorporated in the British Virgin Islands and are Associates of Rajawali.

The significant cash injection by the Subscribers provides funding for the staged implementation of the 2 million tonne per annum iron concentrate facility, ongoing studies into the requirements for pig iron production, completion of financing due diligence and working capital. Completion of the Subscription Agreement will afford the Company the ability to progress these tasks simultaneously.

3.2 Why is Shareholder Approval Required?

Shareholder approval is required under item 7 of section 611 of the Corporations Act. As Rajawali currently has a relevant interest in 19.9% of the issued capital of the Company, without Shareholder approval, Rajawali and its Associates would otherwise be precluded by section 606(1)(c) of the Corporations Act from acquiring more Shares. Under the proposed investment, the issue of the Shares to the Subscribers will result in Rajawali and its Associates increasing their combined voting power in the Company from 19.9% to 57.12%.

The Company has obtained an Independent Expert's Report from BDO to address the fairness and reasonableness of the proposed issue of Shares. The BDO report is attached as Annexure A. The BDO report has concluded that the placement of Shares to Rajawali (or its nominee(s)) is fair and reasonable.

Although the Company proposes to issue in excess of 15% of its issued Share capital, ASX Listing Rule 7.1 does not apply to the issue of Shares under Resolution 1 on the basis that an issue of securities approved for the purposes of Item 7 of section 611 of the Corporations Act is an exception to this rule (Exception 16, ASX Listing Rule 7.2).

The purpose of the General Meeting and this Explanatory Memorandum is to inform Shareholders and to secure all necessary approvals in accordance with the requirements of the Constitution, the Corporations Act and the Listing Rules.

4. Material Terms of the Subscription Agreement 4.1 Conditions precedent to Completion

Completion of the issue of the Shares to the Subscribers is subject to and conditional upon:

(a) Shareholders approving the issue of the new Shares in accordance with item 7 of section 611 of the Corporations Act; and

(b) Shareholders approving the appointment of two Rajawali nominees to the Board with effect from Completion of the subscription for Shares.

4.2 Exclusivity

During the Exclusivity Period (defined below), the Company must ensure that it (or its Related Bodies Corporate, directors, officers, employees, agents or advisers) does not either directly or indirectly solicit, invite, encourage or initiate any enquiries, negotiations, discussions or proposals, or engages with any person, which may reasonably be expected to encourage or lead to, a “Competing Transaction” (defined below).

In addition, the Company must not participate in negotiations in relation to a competing proposal or provide any information to a third party which may enable a Competing Transaction during the Exclusivity Period. However, these restrictions do not apply if the Directors, acting in good faith, determine that the Competing Transaction is superior and failing to respond to the Competing Transaction would likely breach the Directors’ duties. The Board must, however, notify Rajawali of any Competing Transaction that is superior and allow Rajawali the opportunity to amend the current transaction or propose a new transaction.

A Competing Transaction is a proposed transaction or arrangement pursuant to which a person (other than Rajawali or any of its Related Bodies Corporate) would, if the proposed transaction or arrangement is entered into or completed substantially in accordance with its terms:

(a) directly or indirectly acquire, have a right to acquire or otherwise acquire an economic interest in, all or a substantial part of the business of the Company;

(b) acquire a relevant interest in 20% or more of the ordinary shares of the Company or acquire control of the Company within the meaning of section 50AA of the Corporations Act; or

(c) otherwise acquire or merge with the Company (including by way of takeover offer, scheme of arrangement or shareholder approved acquisition).

The Exclusivity Period commenced on 23 September 2012 and will end at 5pm (WST) on the earlier of Completion of the Share subscription to Rajawali or 3 December 2012 (unless a later date is agreed by the Company and Rajawali).

4.3 Break Fee

The Subscription Agreement is subject to a break fee of $500,000 (being 1% of the total subscription price) which is payable by the Company to Rajawali if any of the following occurs:

(a) the Company breaches its exclusivity obligations or materially breaches the Subscription Agreement (other than certain warranties provided by the Company to Rajawali);

(b) any Director (other than Mr Hendra Surya or his replacement) withdraws or adversely modifies their recommendation of the proposed transaction with Rajawali or recommends or supports a Competing Transaction;

(c) the:

(i) Notice is not dispatched to Shareholders on or before 1 November 2012;

(ii) the Resolutions are not put to and voted on by Shareholders on or prior to 3 December 2012,

except to the extent there has been a delay caused as a direct result of the action or inaction of Rajawali; and

(d) during the Exclusivity Period, a Competing Transaction is publicly announced and within 12 months of that announcement:

(i) the proponent of the Competing Transaction acquires a relevant interest in 20% or more of the ordinary shares of Indo or acquires control of Indo within the meaning of section 50AA of the Corporations Act; or

(ii) the Competing Transaction completes.

4.4 Future participation

The Company has agreed, subject to certain conditions and applicable laws:

(a) if it requires funding (either debt or equity), it will first consult with Rajawali in relation to the proposed form of such funding prior to discussions with any third party investors or financiers;

(b) if it proposes to issue new Shares (or options to acquire Shares) then it will use reasonable endeavours to do so by way of a pro-rata rights issue to the existing Shareholders of the Company, and if it is not practicable to do a pro-rata rights issue it will provide Rajawali with a right to be issued additional Shares (or options to acquire Shares) for cash, on the same terms and conditions as those offered to any third party investor;

(c) it will provide Rajawali with a right to participate on a cash equivalent basis (as agreed by the Company and Rajawali and failing such agreement as determined by an independent expert) in any new issues of Shares (or options to acquire Shares) issued by the Company other than for cash; and

(d) it will offer Rajawali the opportunity to underwrite or sub-underwrite any new issue of Shares (or options to acquire Shares), including rights issues, on customary terms.

Rajawali loses its rights set out in paragraphs (a) – (d) above if its shareholding in the Company falls below 10% or any person (or group of persons who are Associates), other than Rajawali or the Subscribers, acquires a direct or indirect legal or beneficial interest in more than 90% of the issued Shares.

4.5 Termination

(a) Rajawali may terminate the Subscription Agreement at any time before Completion of the Share subscription by notice in writing to the Company if:

(i) subject to (b) below, any of the warranties provided by the Company to Rajawali under the Subscription Agreement become untrue or incorrect;

(ii) the Company is in breach of its exclusivity obligations and undertakings, or is in material breach of any other provision of the Subscription Agreement (and Rajawali is not in breach);

(iii) the Board accepts a Competing Transaction; or

(iv) Rajawali advises that a material adverse change has occurred.

(b) Rajawali may not terminate the Subscription Agreement pursuant to a breach of the Subscription Agreement under (a)(i) above or because of a material adverse change under (a)(iv) above unless the Company has been provided with notice of such breach or material adverse change, and if such breach or material adverse change is capable of being cured, not cured within the earlier of:

(i) 5 business days after a notice specifying the breach or material adverse change is given to the Company; or

(ii) one business day prior to Completion.

5. Overview of the Rajawali Group 5.1 Rajawali Group

PT Rajawali Corpora and its Associates (which includes Rajawali and the Subscribers) (“the Rajawali Group”), which was founded in 1984, is one of the largest privately owned conglomerates in Indonesia. Its core operations are in property, agriculture, mining and resources, infrastructure and transport. Its combined portfolio is estimated to be in excess of US$2 billion. The Rajawali Group, by itself or with partners, has made many significant achievements in Indonesia. It was the first to set up a private TV station (RCTI), the first to set up a post office savings bank and the first to set up PT Excelcomindo Pratama (XL) – the first privately owned GSM provider in Indonesia. The Rajawali Group also established Lombok Tourism Development Corporation (LTDC), a 1,250 hectares planned resort community in the island of Lombok, which was later acquired by Emaar Properties group of Abu Dhabi, UAE. Additionally, the Rajawali Group has a proven track record of success in turning around:

(a) Bentoel (the 4th largest cigarette company in Indonesia) from negative equity to net assets of more than US$500 million;

(b) Semen Gresik, the largest cement company in Indonesia, by improving its performance resulting in an increase in its share price of almost 350% in 3.5 years; and

(c) Archipelago Resources, a gold company listed on the Alternative Investment Market of the London Stock Exchange, by increasing its share price from 3 pence per share to as high as 78 pence per share in 32 months.

The Rajawali Group has an established local presence and regional network, along with strong linkages to international investors. It is led by an experienced management team with a track record of driving shareholder value through investment innovation, whilst also supporting the local community and environmental sustainability. Today, the Rajawali Group is one of the foremost companies in Indonesia, and has operations in Malaysia, Singapore, China and Australia. Rajawali Group’s vision is to become one of the largest and most respectable companies in SE Asia.

5.2 Associates of acquiring entity As required by item 7(b)(i) of section 611 of the Corporations Act, the Associates of the Subscribers as at the date of this Notice are:

• Rajawali; and • PT Rajawali Corpora.

6. Impact on Indo Mines 6.1 Impact on the financial position

A pro-forma balance sheet for the Company detailing the effect of Completion of the Subscription Agreement is set out at Schedule 3.

6.2 Impact on the capital structure

Rajawali currently has a relevant interest in 57,317,294 Shares representing 19.9% of the issued capital of the Company as at the date of this Notice.

Assuming the issue of 250,000,000 new Shares pursuant to Resolution 1 to the Subscribers is completed, on an undiluted basis, the number of Shares on issue will increase from 288,026,598 to 538,026,598 and the current interests of Shareholders will be diluted by 46.5%.

Refer to Schedule 2 for details of the effect of the issue of the Shares to the Subscribers pursuant to Resolution 1 will have on the capital structure of the Company including the changes in voting power.

6.3 Change in voting power

The voting power of Rajawali and its Associates in the Company will, as a result of the acquisition of the Shares under the Subscription Agreement, increase from 19.9% to 57.12% (assuming there are no other changes in the issued share capital structure of the Company). Accordingly, the maximum extent of the increase in the voting power of Rajawali and its Associates as a result of the acquisition will be 37.22% (being from an existing voting power of 19.9% to a maximum of 57.12%).

The voting power of Rajawali and its Associates in the Company may also be affected by the following changes:

(a) voting power will be increased as a result of the:

(i) acquisition of Shares by Rajawali and its Associates on and off market. Rajawali and its Associates could increase their shareholding under the creeping provisions allowing them to acquire 3% every 6 months.

(ii) cancellation of Shares held by Shareholders other than Rajawali and its Associates.

(b) Voting power will be decreased as a result of the:

(i) disposal of Shares by Rajawali and its Associates.

(ii) issue of Shares by the Company to Shareholders other than Rajawali and its Associates.

(iii) exercise of Options by Shareholders other than Rajawali and its Associates.

(iv) conditions attaching to the Performance Shares being satisfied.

The increase in voting power of Rajawali and its Associates resulting from the acquisition under this Resolution 1 is set out in Schedule 2.

6.4 Rajawali’s intentions regarding the future of Indo Mines

(a) The Company has been advised by representatives of Rajawali that they are supportive of the Company’s current direction and the Board’s desire for the staged implementation of iron concentrate production leading into the commissioning of the pig iron facility. Rajawali has indicated that they are willing to consider any proposals the Company’s Board and management may put forward as to how they could support and assist the Company in achieving that objective. Notwithstanding that Rajawali is supportive of the Company's current direction, this does not preclude them from considering offers for the whole or part of its shareholding at any time.

(b) Since they are supportive of the Company’s current direction, Rajawali and its Associates do not currently intend to make any major changes to the existing development or exploration projects of the Company and that other than as disclosed above or elsewhere in this Notice:

(i) there is no current intention of making any significant changes to the existing business of the Company;

(ii) there is no current intention to inject further capital into the Company;

(iii) other than the Board changes detailed in section 6.5, there is no current intention to become involved in decisions regarding the future employment of the Company’s present employees and contemplates that they will continue in the ordinary course of business;

(iv) they do not presently intend for any property to be transferred between the Company and any of Rajawali or its Associates or any person associated with any of them;

(v) there is no current intention to redeploy the fixed assets of the Company; and

(vi) there is no current intention to change the Company’s existing financial or dividend policies.

(c) Rajawali will only make a decision on their course of action in light of material facts and circumstances at the relevant time and after they receive appropriate legal and financial advice on such matters, where required, including in relation to any requirement for Shareholder approval.

(d) Rajawali has indicated that the intentions mentioned in this section are based on the facts and information regarding the Company and the general business environment which are known to it as at the date of this Notice. Any future decisions will, of course, be reached by them based on all material information and circumstances at the relevant time. Accordingly, if circumstances change or new information becomes available in the future, then Rajawali intentions may change accordingly.

6.5 Board Structure

As at the date of the Notice, Rajawali has one nominee on the Board, being Mr Hendra Surya. Pursuant to the terms of the Subscription Agreement, Rajawali is entitled to nominate two additional Directors to the Company’s Board, namely Peter John Chambers (whose appointment is the subject of Resolution 2) and Darjoto Setyawan (whose appointment is the subject of Resolution 3).

Assuming Shareholders approve his appointment as a Director, it is currently contemplated that Peter John Chambers will be appointed as Chairman of the Company on Completion. The Company’s current Chairman, Mr Christopher Catlow, will step down as Chairman, but will remain on the Board as a non-executive Director.

Resolutions 2 and 3 are conditional on the approval of Shareholders to Resolution 1. Detailed information on the qualifications and relevant experience of Peter John Chambers and Darjoto Setyawan is set out in section 11.2 of the Explanatory Memorandum. It is also proposed that one of the current non-executive Directors (excluding Mr Christopher Catlow and Mr Hendra Surya) will resign from the Board no later than two months following Completion. As a result of the above changes, the size of the Board will increase from five Directors to six Directors.

7. Advantages, disadvantages and risks 7.1 Risks of voting against the Resolutions

If the Subscription Agreement does not complete, the Company will need to raise capital via an issue of equity, potentially at a significant discount to the Share price, or otherwise cease work at the Company's projects which could have potentially severe consequences with respect to the value and prospects of the Company.

7.2 Advantages of the Subscription Agreement

The Directors are of the view that the following non-exhaustive list of advantages may be relevant to a Shareholder's decision on how to vote on Resolution 1:

(a) the placement of new Shares is at a premium of 100% to the volume weighted average price of Shares over the 30 day period immediately preceding the announcement by the Company advising that it had entered into the Subscription Agreement with Rajawali;

(b) the Company is confident that with the support of Rajawali, it will assist with ongoing regional support for the iron concentrate and pig iron projects, assist in securing appropriate project financing and for the acquisition of additional iron sands assets in the future to help grow the overall business.

7.3 Disadvantages of the Subscription Agreement

The Directors are of the view that the following non-exhaustive list of disadvantages may be relevant to a Shareholder's decision on how to vote on Resolution 1:

(a) after Completion of the Subscription Agreement, Shareholders (other than Rajawali and its Associates) will have their voting power reduced as a result of the dilution of their holding due to the issue of additional Shares. As such, the

ability of the Shareholders to influence decisions, including the composition of the Board or the acquisition or disposal of assets, will be reduced accordingly;

(b) as the Company’s largest shareholder following the acquisition, Rajawali and its Associates will have significant ability to influence decisions including the composition of the Board. In addition, due to its significant shareholding, Rajawali and its Associates will have the ability to block any special resolution at a meeting of Shareholders and prevent compulsory acquisition in the event of a takeover offer from any third party. This may deter the making of a takeover bid for the Company by a third party bidder; and

(c) the increased shareholding may result in there being less market liquidity in the Company’s Shares.

8. Independent Expert’s Report All of the Directors (except for Mr Hendra Surya) resolved to appoint BDO as an independent expert and commissioned it to prepare a report to provide an opinion as to whether or not the proposal the subject of Resolution 1 is fair and reasonable to the existing Shareholders (excluding Rajawali).

This report was prepared to satisfy the requirements of section 611 of the Corporations Act which expressly prohibits a party (and its Associates) acquiring a Relevant Interest in more than 20% of the issued share capital of a public company without the approval of that company's shareholders unless a full takeover is made to all shareholders. Rajawali and its Associates will acquire a Relevant Interest in more than 20% of the issued share capital of the Company if the Subscription Agreement is approved.

What is fair and reasonable must be judged by the independent expert in all the circumstances of the proposal. This requires taking into account the likely advantages to shareholders if the proposal is approved and comparing them with the disadvantages to them if the proposal is not approved.

BDO has concluded that the proposed transaction is fair and reasonable to the existing Shareholders (excluding Rajawali).

The Company strongly recommends that you read the Independent Expert's Report in full, a copy of which is attached as Annexure A to this Explanatory Memorandum.

9. Director's Recommendation Based on the information available, including that contained in this Explanatory Memorandum and the Independent Expert's Report, the advantages and disadvantages, the prospects and alternatives available to the Company and having consulted with the Company's nominated corporate and legal advisors, all of the Directors (except for Mr Hendra Surya, being a current Rajawali Board nominee) consider that Resolution 1 is in the best interests of the Company and recommend that Shareholders VOTE IN FAVOUR of Resolution 1.

10. Resolution 1 - Corporations Act, Listing Rules and Regulatory Information

10.1 Section 611 of the Corporations Act

(a) Section 606 of the Corporations Act prohibits a person acquiring a relevant interest in the issued voting shares of the Company if, because of the acquisition, that person’s or another person’s voting power in the Company increases from:

(i) 20% or below to more than 20%; or

(ii) a starting point that is above 20% and below 90%.

(b) The voting power of a person in the Company is determined by reference to section 610 of the Corporations Act. A person’s voting power in the Company is the total of the votes attaching to the Shares in the Company in which that person and that person’s associates (within the meaning of the Corporations Act) have a relevant interest.

(c) Under section 608 of the Corporations Act a person will have a relevant interest in shares if:

(i) the person is the registered holder of the shares;

(ii) the person has the power to exercise or control the exercise of votes or disposal of the shares; or

(iii) the person has over 20% of the voting power in a company that has a relevant interest in shares, then the person has a relevant interest in said shares.

(d) For the purpose of determining who is an associate you need to consider section 12 of the Corporations Act. Any reference in chapters 6 to 6C of the Corporations Act to an associate is as that term is defined in section 12. The definition of 'associate' in section 12 is exclusive. If a person is an associate under section 11, 13 or 15 of the Corporations Act then it does not apply to chapters 6 to 6C. A person is only an associate for the purpose of chapter 6 to 6C if he is an associate under section 12.

(e) Under section 12 of the Corporations Act, a person (first person) will be an associate of the other person (second person) if:

(i) the first person is a body corporate and the second person is:

(A) A body corporate the first person controls;

(B) A body corporate that controls the first person: or

(C) A body corporate that is controlled by an entity that controls the first person;

(ii) the second person has entered or proposes to enter into a relevant agreement with the first person for the purpose of controlling or influencing the composition of the Board or the conduct of the affairs of Indo Mines; and

(iii) the second person is a person with whom the first person is acting or proposes to act, in concert in relation to the affairs of Indo Mines.

(f) The Corporations Act defines 'control' and 'relevant agreement' very broadly as follows:

(i) Under section 50AA of the Corporations Act control means the capacity to determine the outcome of decisions about the financial and operating policies of the Company. In determining the capacity you need to take into account the practical influence a person can exert and any practice or pattern of behaviour affecting the financial or operating policies of the Company.

(ii) Under section 9 of the Corporations Act, relevant agreement means an agreement, arrangement or understanding:

(A) whether formal or informal or partly informal and partly informal;

(B) whether written or oral or partly written and partly oral; and

(C) whether or not having legal or equitable force and whether or not based on legal or equitable rights.

(g) Associates are determined as a matter of fact. For example where a person controls or influences the Board or the conduct of the Company’s business affairs, or acts in concert with a person in relation to the entity’s business affairs.

(h) Section 611 of the Corporations Act has exceptions to the prohibition in section 606 of the Corporations Act. Item 7 of section 611 of the Corporations Act provides a mechanism by which Shareholders may approve an issue of Shares to a person which results in that person’s or another person’s voting power in the Company increasing from:

(i) 20% or below to more than 20%; or

(ii) a starting point that is above 20% and below 90%.

(i) To comply with the requirements of the Corporations Act (as contained in ASIC Regulatory Guide 74), the Company provides the information in this section 11 of the Explanatory Memorandum to Shareholders in relation to Resolution 1.

10.2 Information required by item 7 of section 611 of the Corporations Act and ASIC Regulatory Guide 74

The information that Shareholders require under item 7 of section 611 of the Corporations Act and ASIC Regulatory Guide 74 is as follows:

(a) The identity of the allottee and their associates.

Refer to section 5 of this Explanatory Memorandum for the identity of the allottee and any person who will have a relevant interest in the Shares to be allotted.

(b) Full particulars of the voting power of the allottee and its associates (including maximum extent of the increase) as a result of the acquisition.

Refer to sections 6.2 and 6.3 and Schedule 2 of this Explanatory Memorandum for full particulars on the effect of the acquisition on the Rajawali and its Associates shareholding and voting power in the Company.

(c) The identity, associations (with Rajawali and its Associates) and qualifications of any person who is intended to become a director if Shareholders approve the acquisition.

Refer to section 6.5 for full particulars of the intended directors.

(d) Rajawali’s intentions regarding the future of the Company if Shareholders approve the proposed allotment of Shares.

Refer to section 6.4 of this Explanatory Memorandum for the intentions of Rajawali in relation to Indo Mines.

(e) Particulars of the terms of the proposed issue and allotment of Shares and details of the terms of any other relevant agreement between Rajawali and its Associates and the Company or any of their associates which is conditional upon, or directly or indirectly dependent on, Shareholder’s approval to the allotment of Shares to the Subscribers.

Refer to section 4 of this Explanatory Memorandum for the material terms of the Subscription Agreement.

Other than the matters referred to in Resolution 1, there are no other contracts or proposed contracts between Rajawali and its Associates and the Company or any of their associates which are conditional upon, or directly or indirectly dependent on, the Shareholders’ approval to the proposed allotment of Shares to the Subscribers.

(f) When the allotment of Shares to the Subscribers is to be made.

The Shares will be issued and allotted to the Subscribers on Completion of the Subscription Agreement, which is to occur five Business Days after satisfaction or waiver of the conditions in the Subscription Agreement. Subject to Shareholders approving Resolutions 1, 2 and 3, the Company anticipates that Completion will occur no later than 3 December 2012.

(g) An explanation of the reasons for the proposed issue and allotment of Shares to the Subscribers.

The Shares are to be issued and allotted to provide funding for the staged implementation of iron concentrate production, ongoing studies into the production of pig iron, completion of financing due diligence and for general working capital for the Company. Refer to section 3.1 of this Explanatory Memorandum for further details.

(h) The interests of the Directors in Resolution 1.

Mr Hendra Surya, a Director of the Company, is an employee of Rajawali and a Board nominee of Rajawali. Other than Mr Hendra Surya, none of the other Directors have an interest in Resolution 1.

(i) Identity of the Directors who approved or voted against the proposal to put Resolution 1 to Shareholders.

Each of the non-conflicted Directors (that is all Directors except for Mr Hendra Surya) approved the proposal to put Resolution 1 to Shareholders.

(j) Any intention of Rajawali or its Associates to change significantly the financial or dividend policies of the Company

Refer to section 6.4 of this Explanatory Memorandum for the intentions of Rajawali or it Associates in relation to the Company.

(k) Recommendation of each Director as to whether Shareholders should approve the proposed acquisition

Refer to section 9 of this Explanatory Memorandum.

(l) An analysis of whether the proposed allotment of Shares to the Subscribers, the subject of Resolution 1, is fair and reasonable when considered in the context of the Shareholders other than Rajawali and its Associates

Refer to section 8 of this Explanatory Memorandum.

The Directors are not aware of any other information that may be relevant to Shareholders' decision whether or not to vote in favour of the Resolution 1.

11. Resolutions 2 and 3 – Election of Directors 11.1 General

Pursuant to the Subscription Agreement, if completion occurs, Rajawali has the right to nominate two persons to be appointed as Directors with one of those nominees being appointed as Chairman.

Accordingly, Resolutions 2 and 3 seek the election of Peter John Chambers and Darjoto Setyawan as Directors pursuant to the Constitution and Section 201E of the Corporations Act.

11.2 The Directors

Background – Peter John Chambers

Mr Peter Chambers presently holds the position of Managing Director - Strategy and Governance with the Rajawali Group and has served as a member of the Board of Directors of PT. Rajawali Corpora since 2005. Mr Chambers is also a member of the Board of Commissioners and Chairman of the Audit Committee of Excelcomindo, Indonesia's third largest mobile telephone operator. He was one of the key persons when Rajawali established Excelcomindo in the late 90s.

He has more than 20 years' experience in the finance and telecommunications industries having been the Head of the South East Asia Communication Practice of Coopers and Lybrand (Hong Kong based). Mr Chambers has also held executive roles with various international companies over the years.

Mr Chambers graduated from the Royal Melbourne Institute of Technology in Melbourne, Australia, with a degree in Finance and Accounting.

Background – Darjoto Setyawan

Mr Darojoto Setyawan has been employed with the Rajawali Group since 1996 and has held the role of Managing Director - Mining & Resources since 2005. He was the President Director of the Bentoel Group, a subsidiary of Rajawali, from 1996 to 2006 and continued from 2006 - 2009 as the President Commissioner. Under his leadership, the Bentoel Group successfully negotiated with a syndicate of international banks as well as two leading State-Owned banks and restructured its loans. During the same period Bentoel underwent some structural changes including organization restructuring. The loan and organizational restructuring have paved the way for Bentoel to regain its position as one of the biggest cigarettes manufacturers in Indonesia.

In addition to being in charge of mining and resources, Mr Setyawan handles all matters related to external relations including those related to Government officials and agencies. He has also served as a member of the board on a number of companies where the Rajawali Group has an interest, including PT. Nusantara Infrastructure and the Semen Gresik Group.

Mr Setyawan has a Bachelor of Science degree in Mathematics and Natural Science from Bandung Institute of Technology and Master of Management from Prasetiya Mulya Institute of Management.

Schedule 1 – Definitions

In this Explanatory Memorandum and Notice of General Meeting:

Affiliate means, with respect to any person, any other person directly or indirectly, Controlling, Controlled by, or under common Control with, that person. Associate has the meaning ascribed in the Corporations Act.

ASIC means Australian Securities and Investments Commission. ASX means ASX Limited ABN 98 008 624 691, trading as the Australian Securities Exchange.

BDO means BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045. Board means the Directors acting in the capacity as the board of the Company.

Business Day means Monday to Friday inclusive, except New Year’s Day, Good Friday, Easter Monday, Christmas Day, Boxing Day, and any other day that ASX declares is not a business day.

Chairman means the chairman of the Board.

Company or Indo Mines means Indo Mines Limited ABN 40 009 245 210.

Completion means completion of the subscription for, and issue and allotment of, the Shares under Resolution 1.

Constitution means the Constitution of the Company as at the date of the General Meeting.

Control means the same meaning as in section 50AA of the Corporations Act and Controlled and Controlling have corresponding meaning. Corporations Act means the Corporations Act 2001 (Cth).

Directors means the directors of the Company.

Explanatory Memorandum means the explanatory memorandum to the Notice.

General Meeting has the meaning given in the introductory paragraph of the Notice.

Independent Expert means BDO.

Independent Expert's Report means the report of the Independent Expert included as Annexure A to this Explanatory Memorandum.

Listing Rules means the listing rules of ASX.

Notice means this Notice of General Meeting.

Proxy Form means the proxy form attached to the Notice.

Related Party has the meaning ascribed in the Listing Rules.

Resolution means a resolution referred to in this Notice.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a shareholder of the Company.

Subscription Agreement has the meaning in section 3.1.

Ultimate Holding Company has the meaning given to it under the Corporations Act 2001 (Cth).

In this Notice, words importing the singular include the plural and vice versa.

Schedule 2 - Capital Structure and Voting Power

Capital structure following the proposed issue of Shares to the Subscribers

The following table shows the effect of Shareholders approving Resolution 1 on the capital structure of the Company and Rajawali and its Associates voting power:

Shares Unlisted options

Unlisted performance

shares Currently on issue 288,026,598 1,500,000 (1) 40,000,000 (2)

To be issued following this Meeting 250,000,000 - -

Balance after issue of the new Shares

538,026,598 1,500,000 40,000,000

NOTE: 1. Exercisable at $0.20 each on or before 1 October 2014. 2. The Class D Performance Shares and the Class E Performance Shares are mutually exclusive in that if the Class D

milestone is satisfied then the Class E milestone cannot be satisfied and vice versa. The Performance Shares convert to Shares on a 1 for 1 basis. The milestones for conversion of the performance shares are as follows: Class D Performance Shares (20,000,000) Either: a) the Company executing an unconditionally legally binding agreement with a strategic partner to substantially

assist in both the development and financing of the Jogjakarta Pig Iron Project and: (i) Making a decision to mine the Jogjakarta Pig Iron Project; and (ii) The strategic partner procuring unconditional funding for at least 40% of the funds required for the

development, construction and operation of the Jogjakarta Pig Iron Project; or b) the completion of the Feasibility Study for the Jogjakarta Pig Iron Project and the Company acting reasonably,

would have made a decision to mine but has sold or otherwise disposed of all of its interest in the Jogjakarta Pig Iron Project,

expiring 31 December 2012; Class E Performance Shares (20,000,000) The: a) completion of the Feasibility Study for the Jogjakarta Pig Iron Project and the Company not making a Decision

to Mine; and b) production and sale by the Company of a total of 1,000,000 tonnes of coal from the BBPK (Mangkok) Coal

project or any other coal project, expiring 31 December 2014.

Voting control of the Rajawali Group

Number of Shares currently on issue

Total number of Shares on issue

following the issue of the new Shares

Total number of Shares on issue if

the unlisted options are

exercised

Total number of Shares on issue if

the unlisted options are exercised and

the performance shares are converted

Total number of Shares on issue

288,026,598 538,026,598 539,526,598 559,526,598

Shareholding of the Rajawali Group

57,317,294 307,317,294 307,317,294 307,317,294

% voting power of the Rajawali Group

19.9% 57.12% 56.96% 54.92%

Schedule 3 – Pro forma balance sheet

Audited

30 June 2012 Audited

30 June 2012 ASSETS

$ Proforma

$ Current Assets Cash and cash equivalents 5,251,106 55,251,106 Restricted cash and cash equivalents 60,000 60,000 Trade and other receivables 329,876 329,876 Inventory 124,943 124,943 Total Current Assets 5,765,925 55,765,925

Non-current Assets Restricted cash and cash equivalents 70,836 70,836 Property, plant and equipment 4,564,130 4,564,130 Exploration and evaluation assets 27,090,953 27,090,953 Total Non-current Assets 31,725,919 31,725,919

TOTAL ASSETS 37,491,844 87,491,844

LIABILITIES Current Liabilities Trade and other payables 1,279,910 1,279,910 Employee benefits 227,524 227,524 Total Current Liabilities 1,507,434 1,507,434 Non-Current Liabilities

Employee benefits 338,888 338,888 Borrowings 4,784,576 4,784,576 Total Non-Current Liabilities 5,123,464 5,123,464

TOTAL LIABILITIES 6,630,898 6,630,898

NET ASSETS 30,860,946 80,860,946

EQUITY Issued capital 94,066,344 144,066,344 Reserves (157,971) (157,971) Accumulated losses (57,888,167) (57,888,167) Total equity attributable to equity holders of the Company

36,020,206

86,020,206

Non-controlling interest (5,159,260) (5,159,260) TOTAL EQUITY 30,860,946 80,860,946

INDO MINES LIMITED ACN 009 245 210

PROXY FORM The Company Secretary Indo Mines Limited By delivery: By post: By facsimile: 68 South Terrace PO Box 532 +61 8 9368 1780 South Perth WA 6151 South Perth WA 6951 Name of Shareholder:

Address of Shareholder:

Number of Shares entitled to vote:

Please mark to indicate your directions. Further instructions are provided overleaf.

Proxy appointments will only be valid and accepted by the Company if they are made and received no later than 48 hours before the meeting.

Step 1 - Appoint a Proxy to Vote on Your Behalf

The Chairman of the Meeting (mark box)

OR if you are NOT appointing the Chairman of the Meeting as your proxy, please write the name of the person or body corporate (excluding the registered shareholder) you are appointing as your proxy

or failing the person/body corporate named, or if no person/body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf, including to vote in accordance with the following directions (or, if no directions have been given, and to the extent permitted by law, as the proxy sees fit), at the Meeting of the Company to be held at 1.00 pm (WST time) on Thursday, 15 November 2012, at the Celtic Club, 48 Ord Street, West Perth, Western Australia and at any adjournment or postponement of that Meeting.

Important – If the Chairman of the Meeting is your proxy or is appointed your proxy by default

The Chairman of the Meeting intends to vote all available proxies in favour of all Resolutions. If the Chairman of the Meeting is your proxy or is appointed your proxy by default, unless you indicate otherwise by ticking either the 'for', 'against' or 'abstain' box in relation to these Resolutions, you will be authorising the Chairman to vote in accordance with the Chairman's voting intentions on the Resolutions.

Step 2 - Instructions as to Voting on Resolutions

The proxy is to vote for or against the Resolutions referred to in the Notice as follows: For Against Abstain

Resolution 1 Proposed Placement of Shares Resolution 2 Election of Peter John Chambers as a Director Resolution 3 Election of Darjoto Setyawan as a Director The Chairman of the Meeting intends to vote all available proxies in favour of the Resolutions. Authorised signature/s This section must be signed in accordance with the instructions overleaf to enable your voting instructions to be implemented.

Individual or Shareholder 1

Shareholder 2

Shareholder 3

Sole Director and Sole Company Secretary

Director

Director/Company Secretary

_________________________ _______________________ ___________________ Contact Name Contact Daytime Telephone Date 1Insert name and address of Shareholder 2 Insert name and address of proxy *Omit if not applicable

Proxy Notes: A Shareholder entitled to attend and vote at the Meeting may appoint a natural person as the Shareholder's proxy to attend and vote for the Shareholder at that Meeting. If the Shareholder is entitled to cast 2 or more votes at the Meeting the Shareholder may appoint not more than 2 proxies. Where the Shareholder appoints more than one proxy the Shareholder may specify the proportion or number of votes each proxy is appointed to exercise. If such proportion or number of votes is not specified each proxy may exercise half of the Shareholder's votes. A proxy may, but need not be, a Shareholder of the Company. If a Shareholder appoints a body corporate as the Shareholder’s proxy to attend and vote for the Shareholder at that Meeting, the representative of the body corporate to attend the Meeting must produce the Certificate of Appointment of Representative prior to admission. A form of the certificate may be obtained from the Company’s share registry. You must sign this form as follows in the spaces provided: Joint Holding: where the holding is in more than one name all of the holders must sign. Power of Attorney: if signed under a Power of Attorney, you must have already lodged it with the registry, or

alternatively, attach a certified photocopy of the Power of Attorney to this Proxy Form when you return it.

Companies: a Director can sign jointly with another Director or a Company Secretary. A sole Director who

is also a sole Company Secretary can also sign. Please indicate the office held by signing in the appropriate space.

If a representative of the corporation is to attend the Meeting the appropriate "Certificate of Appointment of Representative" should be produced prior to admission. A form of the certificate may be obtained from the Company’s Share Registry. Proxy Forms (and the power of attorney or other authority, if any, under which the Proxy Form is signed) or a copy or facsimile which appears on its face to be an authentic copy of the Proxy Form (and the power of attorney or other authority) must be deposited at or received at the office of the Company (68 South Terrace, South Perth, Western Australia, 6151, or by post to PO Box 532, South Perth, Western Australia, 6951 or Facsimile (08) 9368 1780 if faxed from within Australia or +618 9368 1780 if faxed from outside Australia or by email at [email protected]) not less than 48 hours prior to the time of commencement of the Meeting (WST).

INDO MINES LIMITED Independent Expert’s Report

9 October 2012

BDO CORPORATE FINANCE (WA) PTY LTD

Financial Services Guide

9 October 2012

BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 (“we” or “us” or “ours” as appropriate) has been engaged by Indo Mines Limited (“Indo”) to provide an independent expert’s report on the proposal to issue 250 million shares to Rajawali Group to raise $50 million. You will be provided with a copy of our report as a retail client because you are a shareholder of Indo. Financial Services Guide In the above circumstances we are required to issue to you, as a retail client, a Financial Services Guide (“FSG”). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees. This FSG includes information about:

Who we are and how we can be contacted; The services we are authorised to provide under our Australian Financial Services Licence, Licence

No. 316158; Remuneration that we and/or our staff and any associates receive in connection with the general

financial product advice; Any relevant associations or relationships we have; and Our internal and external complaints handling procedures and how you may access them.

Information about us BDO Corporate Finance (WA) Pty Ltd is a member firm of the BDO network in Australia, a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International). The financial product advice in our report is provided by BDO Corporate Finance (WA) Pty Ltd and not by BDO or its related entities. BDO and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services. We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business. Financial services we are licensed to provide We hold an Australian Financial Services Licence that authorises us to provide general financial product advice for securities to retail and wholesale clients. When we provide the authorised financial services we are engaged to provide expert reports in connection with the financial product of another person. Our reports indicate who has engaged us and the nature of the report we have been engaged to provide. When we provide the authorised services we are not acting for you. General Financial Product Advice We only provide general financial product advice, not personal financial product advice. Our report does not take into account your personal objectives, financial situation or needs.You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice.

Financial Services Guide Page 2

Fees, commissions and other benefits that we may receive We charge fees for providing reports, including this report. These fees are negotiated and agreed with the person who engages us to provide the report. Fees are agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. The fee for this engagement is approximately $22,000. Except for the fees referred to above, neither BDO, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report. Other Assignments In the past 2 years BDO Corporate Tax (WA) Pty Ltd has provided tax advice in respect of the proposed issue of performance rights. BDO Corporate Finance (WA) Pty Ltd has undertaken a valuation of a convertible note. Remuneration or other benefits received by our employees All our employees receive a salary. Our employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report. We have received a fee from Indo for our professional services in providing this report. That fee is not linked in any way with our opinion as expressed in this report. Referrals We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide. Complaints resolution Internal complaints resolution process As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing addressed to The Complaints Officer, BDO Corporate Finance (WA) Pty Ltd, PO Box 700 West Perth WA 6872. When we receive a written complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination. Referral to External Dispute Resolution Scheme A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service (“FOS”). FOS is an independent organisation that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial service industry. FOS will be able to advise you as to whether or not they can be of assistance in this matter. Our FOS Membership Number is 12561. Further details about FOS are available at the FOS website www.fos.org.au or by contacting them directly via the details set out below. Financial Ombudsman Service GPO Box 3 Melbourne VIC 3001 Toll free: 1300 78 08 08 Facsimile: (03) 9613 6399 Email: [email protected] Contact details You may contact us using the details set out at the top of our letterhead on page 1 of this FSG.

http://www.fos.org.au/

TABLE OF CONTENTS

1. Introduction 1

2. Summary and Opinion 1

3. Scope of the Report 3

4. Outline of the transaction 4

5. Profile of Indo 5

6. Valuation approach adopted 10

7. Valuation of Indo Shares prior to the Transaction 11

8 Valuation of consideration 22

9 Is the Transaction fair? 23

10 Is the Transaction reasonable? 23

11 Conclusion 25

12 Sources of information 25

13 Independence 25

14 Qualifications 26

15 Disclaimers and consents 26

Appendix 1 – Glossary

Appendix 2 – Valuation Methodologies

Appendx 3 – Economic analysis

Appendix 4 – Industry analysis

Appendix 5 - Independent Valuation Report prepared by SRK

BDO Corporate Finance (WA) Pty Ltd ABN 27 124 031 045 AFS Licence No 316158 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Corporate Finance (WA) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania.

9 October 2012 The Directors Indo Mines Limited 68 South Terrace SOUTH PERTH WA 6151 Dear Sirs

INDEPENDENT EXPERT’S REPORT

1. Introduction On 24 September 2012, Indo Mines Limited (“Indo” or “the Company”) announced that a binding subscription agreement had been reached with the Rajawali Group to issue 250 million shares at 20 cents each to raise $50 million.

2. Summary and Opinion

2.1 Purpose of the report

The directors of Indo have requested that BDO Corporate Finance (WA) Pty Ltd (“BDO”) prepare an independent expert’s report (“our Report”) to express an opinion as to whether or not the issue of 250 million Indo shares to Rajawali Group (“the Transaction”) is fair and reasonable to the non associated shareholders of Indo (“Shareholders”).

Our Report is prepared pursuant to section 611 of the Corporations Act and is to be included in the Explanatory Memorandum for Indo in order to assist the Shareholders in their decision whether to approve the Transaction.

2.2 Approach

Our Report has been prepared having regard to Australian Securities and Investments Commission (“ASIC”) Regulatory Guide 111 (“RG 111”), ‘Content of Expert’s Reports’ and Regulatory Guide 112 (“RG 112”) ‘Independence of Experts’.

In arriving at our opinion, we have assessed the terms of the Transaction as outlined in the body of this report. We have considered:

How the value of an Indo share prior to the Transaction compares to the value of the consideration to be paid;

The likelihood of a superior alternative offer being available to Indo;

Whether a premium for control is being offered in relation to the issue of Indo shares and whether this is appropriate;

2

Other factors which we consider to be relevant to the Shareholders in their assessment of the Transaction; and

The position of Shareholders should the Transaction not proceed.

2.3 Opinion

We have considered the terms of the Transaction as outlined in the body of this report and have concluded that, in the absence of a superior offer, the Transaction is fair and reasonable to Shareholders.

2.4 Fairness

In Section 7.1 we determine that the Transaction consideration compares to the value of Indo shares, as detailed hereunder.

Ref Low

$

Preferred

$

High

$

Value of an Indo Share 7.3 0.073 0.083 0.094

Value of the consideration 8 0.20 0.20 0.20

The above valuation ranges are graphically presented below:

The above pricing indicates that, in the absence of any other relevant information, and a superior offer, the Transaction is fair for Shareholders.

2.5 Reasonableness

We have considered the analysis in Section 10 of this report, in terms of both:

advantages and disadvantages of the Transaction; and

alternatives, including the position of Shareholders if the Transaction does not proceed.

In our opinion, the position of Shareholders if the Transaction is approved is more advantageous than the position if the Transaction is not approved. Accordingly, in the absence of any other relevant information and/or a superior proposal we believe that the Transaction is reasonable for Shareholders.

0.00 0.05 0.10 0.15 0.20 0.25 0.30

Value of consideration per share offered

Value of an Indo share prior to the issue

Value ($)

Valuation Summary

3

The respective advantages and disadvantages considered are summarised below:

ADVANTAGES AND DISADVANTAGES

Section Advantages Section Disadvantages

10.4 The Transaction is fair 10.5 Dilution of existing shareholders

10.4 Access to funding

Other key matters we have considered include:

Section Description

10.1 The consequences of not approving the Transaction

10.3 The potential decline in share price

3. Scope of the Report

3.1 Purpose of the Report

Section 606 of the Corporations Act Regulations (“the Act”) expressly prohibits the acquisition of shares by a party if that acquisition will result in that person (or someone else) holding an interest in 20% or more of the issued shares of a public company, unless a full takeover offer is made to all shareholders.

Section 611 permits such an acquisition if the shareholders of that entity have agreed to the issue of such shares. This agreement must be by resolution passed at a general meeting at which no votes are cast in favour of the resolution by any party who is associated with the party acquiring the shares, or by the party acquiring the shares. Section 611 states that shareholders of the company must be given all information that is material to the decision on how to vote at the meeting.

Regulatory Guide 74 issued by ASIC deals with "Acquisitions Agreed to by Shareholders". It states that the obligation to supply shareholders with all information that is material can be satisfied by the non-associated directors of Indo, by either:

undertaking a detailed examination of the Transaction themselves, if they consider that they have sufficient expertise; or

by commissioning an Independent Expert's Report.

The directors of Indo have commissioned this Independent Expert's Report to satisfy this obligation.

3.2 Regulatory guidance

Neither the Listing Rules nor the Corporations Act defines the meaning of “fair and reasonable”. In determining whether the Transaction is fair and reasonable, we have had regard to the views expressed by ASIC in RG 111. This regulatory guide provides guidance as to what matters an independent expert should consider to assist security holders to make informed decisions about transactions.

This regulatory guide suggests that where the transaction is a control transaction, the expert should focus on the substance of the control transaction rather than the legal mechanism to affect it. RG 111 suggests

4

that where a transaction is a control transaction, it should be analysed on a basis consistent with a takeover bid.

In our opinion, the Transaction is a control transaction as defined by RG 111 and we have therefore assessed the Transaction to consider whether, in our opinion, it is fair and reasonable to Shareholders.

3.3 Adopted basis of evaluation

RG 111 states that a transaction is fair if the value of the offer price or consideration is greater than the value of the securities subject of the offer. This comparison should be made assuming a knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length. When considering the value of the securities subject of the offer in a control transaction the expert should consider this value inclusive of a control premium. Further to this, RG 111 states that a transaction is reasonable if it is fair. It might also be reasonable if despite being ‘not fair’ the expert believes that there are sufficient reasons for security holders to accept the offer in the absence of any higher bid.

Having regard to the above, BDO has completed this comparison in two parts:

A comparison between value of an Indo share prior to the Transaction and the value of the consideration for each Indo share being acquired (fairness – see Section 9 “Is the Transaction Fair?”); and

An investigation into other significant factors to which Shareholders might give consideration, prior to approving the resolution, after reference to the value derived above (reasonableness – see Section 10 “Is the Transaction Reasonable?”).

This assignment is a Valuation Engagement as defined by Accounting Professional & Ethical Standards Board professional standard APES 225 ‘Valuation Services’ (“APES 225”).

A Valuation Engagement is defined by APES 225 as follows:

“an Engagement or Assignment to perform a Valuation and provide a Valuation Report where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and Valuation Procedures that a reasonable and informed third party would perform taking into consideration all the specific facts and circumstances of the Engagement or Assignment available to the Valuer at that time.”

This Valuation Engagement has been undertaken in accordance with the requirements set out in APES 225.

4. Outline of the transaction Indo Mines entered into a subscription agreement with Rajawali whereby, subject to certain conditions, Rajawali agreed to subscribe for 250,000,000 Shares at $0.20 each per Share to raise $50 million (before associated costs). The significant cash injection by Rajawali provides funding for the staged implementation of the 2 million tonne per annum iron concentrate facility, ongoing studies into the requirements for pig iron production, completion of financing due diligence and working capital. Completion of the Subscription Agreement will afford the Company the ability to progress these tasks simultaneously. The Transaction is subject to Shareholders approving the Transaction and the appointment of two Rajawali nominees to the Board of Indo.

5

5. Profile of Indo

5.1 History Indo is a mineral exploration and development company based in Perth, Western Australia. Previously called Australian Kimberly Diamonds NL, and later AKD Limited, the Company was listed on the Australian Securities Exchange in December 1993. Indo’s main asset is a 70% interest in the Jogjakarta Pig Iron Project that is held through a joint venture company, PT Jogja Magasa Iron (JMI). The Company also holds interests in two gold prospects in Peru through Terrace Gold Pty Ltd.

5.1 Jogjakarta Pig Iron Project (Project) The Project is located approximately 30 kilometres from the major city of Jogjakarta, Indonesia. Access to the site is via bitumen roads. There are also rail lines and high voltage power lines servicing the area. The Project centres on a 22 kilometres long by 1.8 kilometres wide stretch of beach between the Kulon Progo and Serang Rivers. The area within the Project boundaries is considered marginal for farming with only minor areas that support traditional farming. The Company believes the Project will have a positive impact on these activities with the rehabilitation support proposed. In November 2008, JMI signed a Contract of Work (COW) with the Indonesian Government which provides security of tenure over the property and agreed guidelines for the development and operation of the Project. The intention is to undertake a phased development of the Project by commencing dry mining of the surface sands on the COW area to generate early cashflow prior to the commencement of pig iron production. The initial iron concentrate project is scheduled to produce 2.0Mt of concentrate per annum at 55% Fe, which will then ultimately be used as feed for the pig iron project. A probable ore reserve of 163.5mt at an average grade of 13.7% Fe for the surface sands has been defined by CSA Global. JMI has recently received its final environmental approval for the company’s Environmental Impact Assessment (known as AMDAL) in relation to the Project. This important milestone provides the green light for the Project to proceed, subject to the issuing of a construction permit, within the specified boundaries of the submission.

6

5.2 Historical Balance Sheet

Balance Sheet As at 30 June 2012

$

As at 30 June 2011

$

CURRENT ASSETS

Cash and cash equivalents Restricted cash and cash equivalents Trade and other receivables Other financial assets Inventory Total Current Assets

5,251,106 60,000

329,876 -

124,943 5,765,925

8,025,093 100,000 682,966 81,000

1,615,903 10,504,962

Non-current Assets Restricted cash and cash equivalents Property, plant and equipment Exploration and evaluation assets Mining rights Total Non-current Assets TOTAL ASSETS

70,836 4,564,130

27,090,953 -

31,725,919 37,491,844

286,257 811,432

27,133,531 3,591,072

31,822,292 42,327,254

LIABILITIES Current Liabilities Trade and other payables Deferred income Provisions Total Current Liabilities

1,279,910

- 227,524

1,507,434

4,268,092

968,824 69,041

5,305,957

Non-Current Liabilities Trade and other payables Provisions Borrowings Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS

-

338,888 4,784,576 5,123,464 6,630,898

30,860,946

387,901 173,300

7,185,142 7,746,343

13,052,300 29,274,954

EQUITY Issued capital Reserves Accumulated losses Total equity attributable to equity holders of the Company Minority interest TOTAL EQUITY

94,066,344

(157,971) (57,888,167)

36,020,206 (5,159,260)

30,860,946

83,160,779 2,385,404

(53,562,649)

31,983,534 (2,708,580)

29,274,954

Source:Indo Mines 2012 Audited annual report

7

5.3 Historical Statement of Comprehensive Income

Statement of Comprehensive Income

Year ended

30 June 2012

$

Year ended

30 June 2011

$

Continuing Operations

Exploration, evaluation and development expenditure (9,175,650) (4,141,041)

Share based payments - (1,944,600)

Depreciation (193,191) (113,957)

Administration expenses (3,507,095) (5,362,777)

(12,875,936) (11,562,375)

Net financial income/(expense) 2,352,434 (958,679)

Gain on sale of available for sale investments 170,439 -

2,522,873 (958,679)

Loss before income tax (10,353,063) (12,521,054)

Income tax expense - -

Loss from continuing operations (10,353,063) (12,521,054)

Discontinued Operations

Loss from discontinued operation (net of income tax) (1,217,256) (9,009,924)

Loss for the year (11,570,319) (21,530,978)

Source: Indo Mines audited annual report 2012

During the year ended 30 June 2012 Indo sold its interest in the Mangkok Coal Project. This is the discontinued operation that has been recognised in the statement of comprehensive income above.

8

5.4 Capital Structure

The share structure of Indo as at 27 September 2012 is outlined below:

Number

Total Ordinary Shares on Issue 288,026,598

Top 20 Shareholders 249,435,648

Top 20 Shareholders - % of shares on issue 86.60

Source: Share registry

The range of shares held in Indo as at 30 September 2012 is as follows:

Range of Shares Held No. of Ordinary

Shareholders No. of Ordinary

Shares %Issued Capital

1-1,000 486 272,677 0.09

1,001-5,000 472 1,238,934 0.43

5,001-10,000 142 1,153,642 0.40

10,001-100,000 280 9,598,308 3.33

100,001 – and over 88 275,763,037 95.74

TOTAL 1,468 288,026,598 100.00


9

The ordinary shares held by the most significant shareholders as at 27 September 2012 are detailed below:

Name No of Ordinary Shares Held

Percentage of Issued Shares (%)

RAJAWALI GROUP INTERNATIONAL LIMITED 57,317,294 19.90

JP MORGAN NOMINEES AUSTRALIA LIMITED 41,462,368 14.40

ROCKCHECK TRADING LIMITED 36,000,000 12.50

PERSHING AUSTRALIA NOMINEES PTY LTD 30,231,835 10.50

Total Top 4 165,011,497 57.29

Others 123,015,101 42.71

Total Ordinary Shares on Issue 288,026,598 100.00


In addition to the ordinary shares, the Company has on issue:

20 million class D performance shares (Note 2);

20 million class E performance shares are on issue (Note 2); and

1.5 million class A vendor options (Note 1).

For the purpose of this analysis, we have assumed that the conditions relating to the performance shares are not satisfied and that the options are not converted.

Note 1: Exercisable at $0.20 each on or before 1 October 2014. Note 2: The Class D Performance Shares and the Class E Performance Shares are mutually exclusive in that if the Class D milestone is

satisfied then the Class E milestone cannot be satisfied and vice versa. The Performance Shares convert to Shares on a 1 for 1 basis. The milestones for conversion of the performance shares are as follows: Class D Performance Shares (20,000,000) - Either a) the Company executing an unconditionally legally binding agreement with a strategic partner to substantially assist

in both the development and financing of the Jogjakarta Pig Iron Project and: (i) Making a decision to mine the Jogjakarta Pig Iron Project; and (ii) The strategic partner procuring unconditional funding for at least 40% of the funds required for the

development, construction and operation of the Jogjakarta Pig Iron Project; or b) the completion of the Feasibility Study for the Jogjakarta Pig Iron Project and the Company acting reasonably, would

have made a decision to mine but has sold or otherwise disposed of all of its interest in the Jogjakarta Pig Iron Project,

expiring 31 December 2012; Class E Performance Shares (20,000,000) - The a) completion of the Feasibility Study for the Jogjakarta Pig Iron Project and the Company not making a Decision to

Mine; and b) production and sale by the Company of a total of 1,000,000 tonnes of coal from the BBPK (Mangkok) Coal project or

any other coal project,

expiring 31 December 2014.

10

6. Valuation approach adopted There are a number of methodologies which can be used to value a business or the shares in a company. The principal methodologies which can be used are as follows:

Capitalisation of future maintainable earnings (“FME”)

Discounted cash flow (“DCF”)

Quoted market price basis (“QMP”)

Net asset value (“NAV”)

Market based assessment

A summary of each of these methodologies is outlined in Appendix 2.

Different methodologies are appropriate in valuing particular companies, based on the individual circumstances of that company and available information. In our assessment of the value of Indo shares we have chosen to employ the following methodologies:

Net asset value as a primary methodology; and

Quoted market price as a secondary methodology.

We have chosen these methodologies for the following reasons:

FME is not appropriate for mining and exploration entities as projects have a finite life

Project values which are assessed under a NAV approach may not be reflected in a quoted market price

It should be noted that QMP is only appropriate as a primary methodology when there is a deep and liquid market.

11

7. Valuation of Indo Shares prior to the Transaction

7.1 Net Tangible Asset Valuation of Indo

We have been advised that there has not been a significant change in the net assets of Indo since 30 June 2012.

Valuation of Indo’s mineral assets

We instructed SRK Consulting (Australasia) Pty Ltd (“SRK”) to provide an independent market valuation of the exploration assets held by Indo. SRK considered a number of different valuation methods when valuing the exploration assets of Indo. SRK applied the DCF methodology to the Project. A discussion of the DCF methodology is attached as Appendix 2.

The range of values for each of Indo’s exploration assets as calculated by SRK is set out below:

Mineral Asset Low Value

$m

Preferred Value

$m

High Value

$m

Iron Concentrate only (probability weighted) 67.4 78.2 90.2

Iron Concentrate & Pig Iron (the Jogjakarta Pig Iron Project)

(probability weighted)

247.9 289.9 333.8

Iron Concentrate & Pig Iron (no probability adjustment) 1,003.8 1,175.4 1,378.5

The table above indicates a range of values for the Project of between $247.9 million and $333.8 million, with a preferred value of $289.9 million, on a probability weighted basis.

The DCF valuation prepared by SRK assumes equity funding of the capital expenditure and does not take into account dilution as required by RG111. Accordingly BDO has amended the model to include debt assumptions and we have then assessed the dilutionary impact of the remaining capital expenditure which would be required to be funded through the issue of equity.

The capital expenditure required for the initial 2.0 Mt per annum iron concentrate project is $160.47 million and for the combined Project, $823.1 million.

Based on the non-binding term sheets that have been provided to Indo by potential lenders, we have assumed that 60% of the capital expenditure for the iron concentrate project would be raised at an interest rate of 9.75% for a period of 5 years. Due to the phased nature of the Project, debt funding of the Pig Iron component of the Project is not yet at a stage for which indicative term sheets are available. As such, we have not assumed that any debt funding other than that which has been assumed for the iron concentrate will be utilised.

We have assumed that the remaining capital expenditure will be funded via the issue of equity. We have calculated the issue price for the shares to be issued to satisfy the equity component based on our preferred share price from section 10.2 with a discount of 8% applied. This results in us assuming that the equity component for the remaining capital expenditure of approximately $64.2 million is raised at around 10.12 cents per share.

12

In determining the level of the discount, we analysed placements on Bloomberg that were greater than $40 million in the last 12 months to determine an average discount to the traded price.

Based on the adjusted model the values as calculated by BDO are set out below.

Mineral Asset Low Value

$m

Preferred Value

$m

High Value

$m

Iron Concentrate only (probability weighted) 63.6 72.6 82.6

Iron Concentrate & Pig Iron (the Jogjakarta Pig Iron Project)

(probability weighted)

297.1 338.3 386.4

Iron Concentrate & Pig Iron (no probability adjustment) 996.6 1,169.3 1,370.2

We have set out the valuation of Indo’s shares prior to the Transaction showing these three scenario’s below.

13

IRON CONCENTRATE ONLY (PROBABILITY WEIGHTED)

Balance Sheet

As at 30 June 2012

$

Valuation Low

$

Valuation Preferred

$

Valuation High

$

CURRENT ASSETS

Cash and cash equivalents Restricted cash and cash equivalents Trade and other receivables Inventory

Total Current Assets

5,251,106 60,000

329,876 124,943

5,765,925

5,251,106 60,000

329,876 124,943

5,765,925

5,251,106 60,000

329,876 124,943

5,765,925

5,251,106 60,000

329,876 124,943

5,765,925

Non-current Assets Restricted cash and cash equivalents Property, plant and equipment Exploration and evaluation assets Total Non-current Assets TOTAL ASSETS

70,836

4,564,130 27,090,953 31,725,919 37,491,844

70,836

4,564,130 63,600,000 68,234,966 74,000,891

70,836

4,564,130 72,600,000

290,434,966 296,200,891

70,836

4,564,130 82,600,000

338,034,966 343,800,891


1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434

Non-Current Liabilities Provisions Borrowings Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS

338,888

4,784,576 5,123,464 6,630,898

30,860,946

338,888

4,784,576 5,123,464 6,630,898

67,369,993

338,888

4,784,576 5,123,464 6,630,898

289,569,993

338,888

4,784,576 5,123,464 6,630,898

337,169,993

Capital expenditure required net of debt 64,190,000 64,190,000 64,190,000

Shares to be issued following capital expenditure financing at 10.12 cents per share

634,288,538 634,288,538 634,288,538

Current shares on issue 288,026,598 288,026,598 288,026,598

Total shares 922,315,136 922,315,136 922,315,136

Value per share 0.073 0.083 0.094

14

IRON CONCENTRATE AND PIG IRON (PROBABILITY WEIGHTED)

Balance Sheet

As at 30 June 2012

$

Valuation Low

$

Valuation Preferred

$

Valuation High

$

CURRENT ASSETS



5,251,106 60,000

329,876 124,943

5,765,925

5,251,106 60,000

329,876 124,943

5,765,925

5,251,106 60,000

329,876 124,943

5,765,925

5,251,106 60,000

329,876 124,943

5,765,925


70,836

4,564,130 27,090,953 31,725,919 37,491,844

70,836

4,564,130 297,100,000 301,500,891 307,500,891

70,836

4,564,130 338,300,000 342,934,966 348,700,891

70,836

4,564,130 386,400,000 391,034,966 386,800,891


1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434


338,888

4,784,576 5,123,464 6,630,898

30,860,946

338,888

4,784,576 5,123,464 6,630,898

300,869,993

338,888

4,784,576 5,123,464 6,630,898

342,069,993

338,888

4,784,576 5,123,464 6,630,898

390,169,993

Capital expenditure required net of debt 726,720,000 726,720,000 726,720,000


7,181,027,668 7,181,027,668 7,181,027,668


Total shares 7,469,054,266 7,469,054,266 7,469,054,266

Value per share 0.040 0.046 0.052

15

IRON CONCENTRATE AND PIG IRON (NO PROBABILITY ADJUSTMENT)

Balance Sheet As at 30 June 2012

$

Valuation Low

$

Valuation Preferred

$

Valuation High

$

CURRENT ASSETS



5,251,106 60,000 329,876 124,943

5,765,925

5,251,106 60,000 329,876 124,943

5,765,925

5,251,106 60,000 329,876 124,943

5,765,925

5,251,106 60,000 329,876 124,943

5,765,925


70,836

4,564,130 27,090,953 31,725,919 37,491,844

70,836

4,564,130 996,600,000

1,001,234,966 1,007,000,891

70,836

4,564,130 1,169,300,000

1,173,934,966

1,179,700,891

70,836

4,564,130 1,370,200,000

1,374,834,966

1,380,600,891


1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434

1,279,910 -

227,524 1,507,434


338,888

4,784,576 5,123,464 6,630,898

30,860,946

338,888

4,784,576 5,123,464 6,630,898

1,000,369,993

338,888

4,784,576 5,123,464 6,630,898

1,173,069,993

338,888

4,784,576 5,123,464 6,630,898

1,373,969,993

Capital expenditure required net of debt

726,720,000 726,720,000 726,720,000


7,181,027,668 7,181,027,668 7,181,027,668


Total shares 7,469,054,266 7,469,054,266 7,469,054,266

Value per share 0.134 0.157 0.184

16

Following this analysis we have determined that the value of an Indo Share prior to the Transaction should be based on the initial Iron Concentrate development only scenario. We formed this view after discussing the probability weightings with SRK. The probability weighting’s adopted by SRK factor in that there are still some risks associated with the Project progressing that are not accounted for via the discount rate. We have adopted the Iron Concentrate scenario as it is currently the least dilutive option for Shareholders when compared to the probability adjusted valuation, as given the studies that have been undertaken on this to date, the risks for the SRK probability weighting do not impact the Iron Concentrate valuation to the same extent as they do to the Pig Iron, given that further studies are currently being undertaken to define this process route.

The non probability weighted scenario has been included to illustrate the potential upside that may be available as the Project progresses.

Although, we note that this scenario still includes significantly dilution given that we have assumed it is equity funded at around 10 cents per share. As the Company has planned a phased development approach of both options, this is likely to result in less dilution as the Project progresses and free cashflow from the iron concentrate project assists with funding the capital expenditure required for development of the pig iron project.

The result for the less dilutive Iron Concentrate only scenario is shown below

Low

$

Preferred

$

High

$

Net asset value 0.073 0.083 0.094

7.2 Quoted Market Prices for Indo Securities

To provide a comparison to the valuation of Indo in Section 7.1, we have also assessed the quoted market price for an Indo share.

The quoted market value of a company’s shares is reflective of a minority interest. A minority interest is an interest in a company that is not significant enough for the holder to have an individual influence in the operations and value of that company.

RG 111.11 suggests that when considering the value of a company’s shares for the purposes of approval under Item 7 of s611 the expert should consider a premium for control. An acquirer could be expected to pay a premium for control due to the advantages they will receive should they obtain 100% control of another company. These advantages include the following:

control over decision making and strategic direction;

access to underlying cash flows;

control over dividend policies; and

access to potential tax losses.

Whilst Rajawali will not be obtaining 100% of Indo, RG 111 states that the expert should calculate the value of a target’s shares as if 100% control were being obtained. RG 111.13 states that the expert can

17

then consider an acquirer’s practical level of control when considering reasonableness. Reasonableness has been considered in Section 10.2.

Therefore, our calculation of the quoted market price of an Indo share, including a premium for control, has been prepared in two parts. The first part is to calculate the quoted market price on a minority interest basis. The second part is to add a premium for control to the minority interest value to arrive at a quoted market price value that includes a premium for control.

Minority interest value

Our analysis of the quoted market price of an Indo share is based on the pricing prior to the announcement of the Transaction. This is because the value of an Indo share after the announcement may include the effects of any change in value as a result of the Transaction. However, we have considered the value of an Indo share following the announcement when we have considered reasonableness in Section 10.

Information on the Transaction was announced to the market on 24 September. Therefore, the following chart provides a summary of the share price movement over the 12 months to 21 September 2012 which was the last trading day prior to the announcement.

Source: Bloomberg

The daily price of Indo shares from 22 September 2011 to 21 September 2012 has ranged from a high of $0.47 on 22 September 2011 to a low of $0.081 on 3 September 2012.

Trading has been limited over the period with an increase in volume occurring on 20 February 2012. There was no announcement that occurred immediately prior to this which would indicate the reason for the increase in volume. The price has shown a downward trend consistent with challenging economic conditions and other exploration and development companies.

-2.04.06.08.010.012.014.0

0.00

0.10

0.20

0.30

0.40

0.50

Vol

ume

(mill

ions

)

Shar

e Pr

ice

($)

IDO share price and trading volume history

Volume Closing share price

18

During this period a number of announcements were made to the market. The key announcements are set out below:

Date Announcement

Closing Share Price Following Announcement

Closing Share Price Three Days After Announcement

$ (movement) $ (movement)

29/08/2012 Demonstration Plant Update 0.111 ( Nil) 0.098 ( 10.9%)

1/08/2012 Quarterly Activities & Cashflow Report 0.145 ( 9.4%) 0.125 ( 13.8%)

28/05/2012 Trial Plant Update 0.240 ( Nil) 0.230 ( 4.2%)

22/05/2012 First Production from Trial Facility 0.220 ( Nil) 0.240 ( 9.1%)


21/03/2012 Indonesian Mining Regulations 0.265 ( 1.9%) 0.290 ( 9.4%)

1/02/2012 Final Environmental Approval Received for Iron Project

0.315 ( 8.6%) 0.320 ( 1.6%)


16/01/2012 Capital Raising Update 0.260 ( Nil) 0.270 ( 3.8%)

30/12/2011 Sale of Mangkok Coal Project 0.275 ( 1.9%) 0.275 ( Nil)

20/12/2011 Capital Raising and Cornerstone Investor 0.230 ( Nil) 0.265 ( 15.2%)

9/11/2011 Response to ASX Query 0.255 ( 7.3%) 0.280 ( 9.8%)


To provide further analysis of the market prices for an Indo share, we have also considered the weighted average market price for 10, 30, 60 and 90 day periods to 21 September 2012.

21 Sept 2012 10 Days 30 Days 60 Days 90 Days

Closing Price $0.110

Weighted Average $0.110 $0.101 $0.111 $0.130

The above weighted average prices are prior to the date of the announcement of the Transaction to avoid the influence of any increase in price of Indo shares that has occurred since the Transaction was announced.

19

An analysis of the volume of trading in Indo shares for the twelve months to 21 September 2012 is set out below:

Share price low Share price high Cumulative Volume

traded As a % of Issued

capital

1 day $0.110 $0.110 211,000 0.07%

10 days $0.090 $0.120 1,392,006 0.48%

30 days $0.081 $0.120 4,399,339 1.53%

60 days $0.081 $0.170 7,399,532 2.57%

90 days $0.081 $0.220 10,129,808 3.52%

180 days $0.081 $0.290 14,921,707 5.18%

1 year $0.081 $0.360 42,971,192 14.92%

This table indicates that Indo’s shares display a low level of liquidity, with 14.92% of the Company’s current issued capital being traded in a twelve month period. For the quoted market price methodology to be reliable there needs to be a ‘deep’ market in the shares. RG 111.69 indicates that a ‘deep’ market should reflect a liquid and active market. We consider the following characteristics to be representative of a deep market:

Regular trading in a company’s securities;

Approximately 1% of a company’s securities are traded on a weekly basis;

The spread of a company’s shares must not be so great that a single minority trade can significantly affect the market capitalisation of a company; and

There are no significant but unexplained movements in share price.

A company’s shares should meet all of the above criteria to be considered ‘deep’, however, failure of a company’s securities to exhibit all of the above characteristics does not necessarily mean that the value of its shares cannot be considered relevant.

In the case of Indo, we do not believe that there is significant liquidity to consider trading to be deep.

Our assessment is that a range of values for Indo shares based on market pricing, after disregarding post announcement pricing, is between $0.101 and $0.11.

Control Premium

The concept of a premium for control reflects the additional value that attaches to a controlling interest. In determining whether including a control premium is appropriate in this instance, we believe there are two key considerations. Firstly, we believe it is appropriate to consider the level of control currently held

20

by Rajawali and what additional level of control/ability to influence the Company Rajawali would gain if the Transaction is accepted and whether a premium for control is appropriate given the current position of the Company.

We have reviewed the control premiums paid by acquirers for target iron ore companies listed on the ASX since 2006 to date. A summary of the announced control premiums is noted in the table below:

Announcement Date Target Name Acquirer Name

Shareholder Interest Post Transaction

Average Deal Value (US$m)

Announced Control Premium (%)

10/01/2012 African Iron Ltd Exxaro Resources Ltd 100% 246.35 62.51

9/06/2011 Territory Resources Ltd Noble Group Ltd 75% 112.89 26.97

21/12/2010 Giralia Resources NL Atlas Iron Ltd 100% 983.83 52.51

8/07/2010 Padbury Mining Ltd Fe Ltd 100% 0.35 24.57

4/01/2010 IMX Resources Ltd Taifeng Group Co Ltd 100% 19.32 23.47

16/10/2009 United Minerals Corp NL BHP Billiton Ltd 100% 191.82 38.59

7/09/2009 Warwick Resources Ltd Atlas Iron Ltd 100% 48.59 60.07

20/08/2009 Polaris Metals NL Mineral Resources

Ltd 100%

138.63 109.15

14/03/2008 Midwest Corp Ltd Sinosteel Corp 100% 1068.62 36.03

24/07/2006 Aztec Resources

Ltd/Australia Mount Gibson Iron

Ltd 100%

207.24 36.48

Median 165.23 37.54

Average 301.76 47.04

We have also included an analysis of the announced control premia paid for effective control acquisitions in the general mining industry of Australia since 2006 to date.

Year Number of Transactions Average Deal Value (AU$m) Average Control Premium (%) 2012 6 115.61 63.61

2011 14 817.33 17.07

2010 20 918.72 47.43

2009 20 146.98 35.82

2008 8 591.43 38.87

2007 24 665.73 26.24

2006 14 124.36 37.79

Median 591.43 37.79

Mean 482.88 38.12

21

In arriving at an appropriate control premium to apply we note that observed control premiums can vary due to the:

Nature and magnitude of non-operating assets;

Nature and magnitude of discretionary expenses;

Perceived quality of existing management;

Nature and magnitude of business opportunities not currently being exploited;

Ability to integrate the acquiree into the acquirer’s business;

Level of pre-announcement speculation of the transaction;

Level of liquidity in the trade of the acquiree’s securities.

We note that a number of the iron transactions control premia relate to transactions where a company is in production or is close to production. In a number of these cases the acquirer has infrastructure which will provide specific benefits and accordingly we believe Indo would be subject to a lower premium for control. Based on historical premia and Indo’s stage of development we believe a control premium of 20% - 30% is appropriate.

Quoted market price including control premium

Applying a control premium to Indo’s quoted market price valuation results in the following quoted market price value including a premium for control:

Low

$

Preferred

$

High

$

Quoted market price value 0.101 0.11 0.11

Control premium 20% 25% 30%

Quoted market price valuation including a premium for control 0.1212 0.1375 0.143

Therefore, our valuation of an Indo share based on the quoted market price method and including a premium for control is between $0.1212 and $0.1430, with a preferred value of $0.1375.

22

7.3 Assessment of Indo Share Value

The results of the valuations performed are summarised in the table below:

Low

$

Preferred

$

High

$

Net tangible assets (Section 10.1) 0.073 0.083 0.094

ASX market prices (Section 10.2) 0.1212 0.1375 0.1430

As Indo is illiquid we believe the most appropriate method in accordance with RG111 is the NTA method.

Based on the results above we consider the value of an Indo share to be between $0.073 and $0.094, with a preferred value of $0.083.

We note that there is a significant variance between the ASX price and the NTA price. We note that the NTA method required the dilution for capital expenditure to be determined as at the valuation date and prior to the effect of the Transaction being taken into account. This may not occur in practice as the Company may raise funds progressively and apply these funds to potentially improving the project value. It is also noted that there may be changes in capital market conditions that lead to the dilutionary impact being less in the future. The share price may also reflect the potential upside of the de-risked valuation being the Iron Sands & Pig Iron value without probability weightings.

8. Valuation of consideration The consideration payable is 20 cents per share in cash, totalling $50 million.

23

9. Is the Transaction fair? The value of an Indo Share prior to the Transaction is compared to the consideration below:

Ref Low

$

Preferred

$

High

$

Value of an Indo Share 10.3 0.073 0.083 0.094

Value of the consideration 11 0.20 0.20 0.20

We note from the table above that the value of the consideration being paid per share is greater than the value of an Indo share prior to the Transaction. Therefore, we consider that the Transaction is fair.

10. Is the Transaction reasonable?

10.1 Alternative Proposal

We are unaware of any alternative proposal that might offer the Shareholders of Indo a premium over the value ascribed to the Transaction.

10.2 Practical Level of Control

If the Transaction is approved then Rajawali will hold an interest of approximately 57.12% in Indo. In addition to this, Indo will have two further Board members nominated by Rajawali.

When shareholders are required to approve an issue that relates to a company there are two types of approval levels. These are general resolutions and special resolutions. A general resolution requires 50% of shares to be voted in favour to approve a matter and a special resolution requires 75% of shares on issue to be voted in favour to approve a matter. If the Transaction is approved then Rajawali will be able to block special and general resolutions and pass general resolutions.

Indo’s Board currently comprises five directors. Rajawali will nominate two additional directors (of which one will assume the role of Chairman), in addition to their current representative. It is also required that one of the existing directors will step down. This will take Indo’s Board to six directors of which the Rajawali nominated directors will make up 50% of the Board.

Rajawali’s control of Indo following the Transaction will be significant when compared to all other shareholders. Therefore, in our opinion, Rajawali will be able to significantly influence the activities of Indo. As such, Rajawali should be expected to pay a similar premium for control as if it were acquiring 100% of Indo.

10.3 Consequences of not Approving the Transaction

Consequences

If the Transaction is not approved Indo will require alternate sources of funding to progress the Project, which is likely to be at a discount to the current share price. If the Company does not raise funds they may be forced to cease work on the Project which may impact on the value of an Indo share.

24

Potential decline in share price

We have analysed movements in Indo’s share price since the Transaction was announced. A graph of Indo’s share price since the announcement is set out below.

Source: Bloomberg

The share price has shown an increase following a small initial decrease which was consistent with market conditions. It would appear that following the general market decrease the Transaction has been viewed as beneficial by the market.

Given the above analysis, it is possible that if the Transaction is not approved then Indo’s share price may decline.

10.4 Advantages of Approving the Transaction

We have considered the following advantages when assessing whether the Transaction is reasonable.

Advantage Description

The Transaction is fair As set out in Section 9 the Transaction is fair. RG 111 states that an

offer is reasonable if it is fair.

Access to funding The Transaction provides $50 million in funding which can be used

to further advance the Project which may lead to an increase in

value for non associated shareholders.

-

0.5

1.0

1.5

2.0

2.5

0.000.020.040.060.080.100.120.140.160.18

Vol

ume

(mill

ions

)

Shar

e Pr

ice

($)

Volume Closing share price

Date of Announcement

25

10.5 Disadvantages of Approving the Transaction

If the Transaction is approved, in our opinion, the potential disadvantages to Shareholders include those listed in the table below:

Disadvantage Description

Dilution of current

shareholders

Following the Transaction Rajawali will hold 57.12% of Indo and current shareholders

will be diluted by 46.5%.

11. Conclusion We have considered the terms of the Transaction as outlined in the body of this report and have concluded that the Transaction is fair and reasonable to the Shareholders of Indo.

12. Sources of information This report has been based on the following information:

Draft Notice of General Meeting and Explanatory Statement on or about the date of this report;

Audited financial statements of Indo for the years ended 30 June 2012 and 30 June 2011

Independent Valuation Report of Indo mineral assets dated September 2012 performed by SRK;

Share registry information;

Information in the public domain; and

Discussions with Directors and Management of Indo.

13. Independence BDO Corporate Finance (WA) Pty Ltd is entitled to receive a fee of $22,000 (excluding GST and reimbursement of out of pocket expenses). The fee is not contingent on the conclusion, content or future use of this Report. Except for this fee, BDO Corporate Finance (WA) Pty Ltd has not received and will not receive any pecuniary or other benefit whether direct or indirect in connection with the preparation of this report.

BDO Corporate Finance (WA) Pty Ltd has been indemnified by Indo in respect of any claim arising from BDO Corporate Finance (WA) Pty Ltd's reliance on information provided by Indo, including the non provision of material information, in relation to the preparation of this report.

Prior to accepting this engagement BDO Corporate Finance (WA) Pty Ltd has considered its independence with respect to Indo and Rajawali and any of their respective associates with reference to ASIC Regulatory Guide 112 “Independence of Experts”. In BDO Corporate Finance (WA) Pty Ltd’s opinion it is independent of Indo and Rajawali and their respective associates.

A draft of this report was provided to Indo for confirmation of the factual accuracy of its contents. No significant changes were made to this report as a result of this review.

BDO is the brand name for the BDO International network and for each of the BDO Member firms.

26

BDO (Australia) Ltd, an Australian company limited by guarantee, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of Independent Member Firms. BDO in Australia, is a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International).

14. Qualifications BDO Corporate Finance (WA) Pty Ltd has extensive experience in the provision of corporate finance advice, particularly in respect of takeovers, mergers and acquisitions.

BDO Corporate Finance (WA) Pty Ltd holds an Australian Financial Services Licence issued by the Australian Securities and Investment Commission for giving expert reports pursuant to the Listing rules of the ASX and the Corporations Act.

The persons specifically involved in preparing and reviewing this report were Sherif Andrawes and Adam Myers of BDO Corporate Finance (WA) Pty Ltd. They have significant experience in the preparation of independent expert reports, valuations and mergers and acquisitions advice across a wide range of industries in Australia and were supported by other BDO staff.

Sherif Andrawes is a Fellow of the Institute of Chartered Accountants in England & Wales and a Member of the Institute of Chartered Accountants in Australia. He has over twenty five years experience working in the audit and corporate finance fields with BDO and its predecessor firms in London and Perth. He has been responsible for over 200 public company independent expert’s reports under the Corporations Act or ASX Listing Rules. These experts’ reports cover a wide range of industries in Australia with a focus on companies in the natural resources sector. Sherif Andrawes is the Chairman of BDO in Western Australia, Corporate Finance Practice Group Leader of BDO in Western Australia and the Natural Resources Leader for BDO in Australia.

Adam Myers is a member of the Australian Institute of Chartered Accountants. Adam’s career spans 14 years in the Audit and Assurance and Corporate Finance areas. Adam has considerable experience in the preparation of independent expert reports and valuations in general for companies in a wide number of industry sectors.

15. Disclaimers and consents This report has been prepared at the request of Indo for inclusion in the Explanatory Memorandum which will be sent to all Indo Shareholders. Indo engaged BDO Corporate Finance (WA) Pty Ltd to prepare an independent expert's report to consider if the placement to Rajawali of 250 million shares at 20 cents each to raise $50 million is fair and reasonable to non associated shareholders.

BDO Corporate Finance (WA) Pty Ltd hereby consents to this report accompanying the above Explanatory Memorandum. Apart from such use, neither the whole nor any part of this report, nor any reference thereto may be included in or with, or attached to any document, circular resolution, statement or letter without the prior written consent of BDO Corporate Finance (WA) Pty Ltd.

BDO Corporate Finance (WA) Pty Ltd takes no responsibility for the contents of the Explanatory Memorandum other than this report.

BDO Corporate Finance (WA) Pty Ltd has not independently verified the information and explanations supplied to us, nor has it conducted anything in the nature of an audit or review of Indo in accordance with standards issued by the Auditing and Assurance Standards Board. However, we have no reason to

27

believe that any of the information or explanations so supplied are false or that material information has been withheld. It is not the role of BDO Corporate Finance (WA) Pty Ltd acting as an independent expert to perform any due diligence procedures on behalf of the Company. The Directors of the Company are responsible for conducting appropriate due diligence in relation to Rajawali. BDO Corporate Finance (WA) Pty Ltd provides no warranty as to the adequacy, effectiveness or completeness of the due diligence process.

The opinion of BDO Corporate Finance (WA) Pty Ltd is based on the market, economic and other conditions prevailing at the date of this report. Such conditions can change significantly over short periods of time.

With respect to taxation implications it is recommended that individual Shareholders obtain their own taxation advice, in respect of the Transaction, tailored to their own particular circumstances. Furthermore, the advice provided in this report does not constitute legal or taxation advice to the Shareholders of Indo, or any other party.

BDO Corporate Finance (WA) Pty Ltd has also considered and relied upon independent valuations for mineral assets held by Indo.

The valuer engaged for the mineral asset valuation, SRK, possess the appropriate qualifications and experience in the industry to make such assessments. The approaches adopted and assumptions made in arriving at their valuation is appropriate for this report. We have received consent from the valuer for the use of their valuation report in the preparation of this report and to append a copy of their report to this report.

The statements and opinions included in this report are given in good faith and in the belief that they are not false, misleading or incomplete.

The terms of this engagement are such that BDO Corporate Finance (WA) Pty Ltd has no obligation to update this report for events occurring subsequent to the date of this report.

Yours faithfully

BDO CORPORATE FINANCE (WA) PTY LTD

Sherif Andrawes

Director

Adam Myers

Director

28

Appendix 1 – Glossary of Terms

Reference Definition

The Act The Corporations Act

APES 225 Accounting Professional & Ethical Standards Board professional standard APES 225

‘Valuation Services’

ASIC Australian Securities and Investments Commission

ASX Australian Securities Exchange

BDO BDO Corporate Finance (WA) Pty Ltd

Indo Indo Mines Limited

The Company Indo Mines Limited

DCF Discounted Future Cash Flows

EBIT Earnings before interest and tax

EBITDA Earnings before interest, tax, depreciation and amortisation

FME Future Maintainable Earnings

NAV Net Asset Value

Our Report This Independent Expert’s Report prepared by BDO

RG111 Content of expert reports (March 2011)

RG112 Independence of experts (March 2011)

The Transaction The proposal to issue 250 million shares in Indo to Rajawali

Shareholders Shareholders of Indo not associated with Rajawali

VWAP Volume Weighted Average Price

Valuation Engagement An Engagement or Assignment to perform a Valuation and provide a Valuation Report

where the Valuer is free to employ the Valuation Approaches, Valuation Methods, and

Valuation Procedures that a reasonable and informed third party would perform taking

into consideration all the specific facts and circumstances of the Engagement or

Assignment available to the Valuer at that time.

29

Appendix 2 – Valuation Methodologies Methodologies commonly used for valuing assets and businesses are as follows:

1 Net asset value (“NAV”) Asset based methods estimate the market value of an entity’s securities based on the realisable value of its identifiable net assets. Asset based methods include:

Orderly realisation of assets method

Liquidation of assets method

Net assets on a going concern method

The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to entity holders, after payment of all liabilities including realisation costs and taxation charges that arise, assuming the entity is wound up in an orderly manner.

The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the entity may not be contemplated, these methods in their strictest form may not be appropriate. The net assets on a going concern method estimates the market values of the net assets of an entity but does not take into account any realisation costs.

Net assets on a going concern basis are usually appropriate where the majority of assets consist of cash, passive investments or projects with a limited life. All assets and liabilities of the entity are valued at market value under this alternative and this combined market value forms the basis for the entity’s valuation.

Often the FME and DCF methodologies are used in valuing assets forming part of the overall Net assets on a going concern basis. This is particularly so for exploration and mining companies where investments are in finite life producing assets or prospective exploration areas.

These asset based methods ignore the possibility that the entity’s value could exceed the realisable value of its assets as they do not recognise the value of intangible assets such as management, intellectual property and goodwill. Asset based methods are appropriate when an entity is not making an adequate return on its assets, a significant proportion of the entity’s assets are liquid or for asset holding companies.

2 Quoted Market Price Basis (“QMP”) A valuation approach that can be used in conjunction with (or as a replacement for) other valuation methods is the quoted market price of listed securities. Where there is a ready market for securities such as the ASX, through which shares are traded, recent prices at which shares are bought and sold can be taken as the market value per share. Such market value includes all factors and influences that impact upon the ASX. The use of ASX pricing is more relevant where a security displays regular high volume trading, creating a “deep” market in that security.

3 Capitalisation of future maintainable earnings (“FME”) This method places a value on the business by estimating the likely FME, capitalised at an appropriate rate which reflects business outlook, business risk, investor expectations, future growth prospects and other entity specific factors. This approach relies on the availability and analysis of comparable market data.

30

The FME approach is the most commonly applied valuation technique and is particularly applicable to profitable businesses with relatively steady growth histories and forecasts, regular capital expenditure requirements and non-finite lives.

The FME used in the valuation can be based on net profit after tax or alternatives to this such as earnings before interest and tax (“EBIT”) or earnings before interest, tax, depreciation and amortisation (“EBITDA”). The capitalisation rate or "earnings multiple" is adjusted to reflect which base is being used for FME.

4 Discounted future cash flows (“DCF”) The DCF methodology is based on the generally accepted theory that the value of an asset or business depends on its future net cash flows, discounted to their present value at an appropriate discount rate (often called the weighted average cost of capital). This discount rate represents an opportunity cost of capital reflecting the expected rate of return which investors can obtain from investments having equivalent risks.

Considerable judgement is required to estimate the future cash flows which must be able to be reliably estimated for a sufficiently long period to make this valuation methodology appropriate.

A terminal value for the asset or business is calculated at the end of the future cash flow period and this is also discounted to its present value using the appropriate discount rate.

DCF valuations are particularly applicable to businesses with limited lives, experiencing growth, that are in a start up phase, or experience irregular cash flows.

5 Market Based Assessment The market based approach seeks to arrive at a value for a business by reference to comparable transactions involving the sale of similar businesses. This is based on the premise that companies with similar characteristics, such as operating in similar industries, command similar values. In performing this analysis it is important to acknowledge the differences between the comparable companies being analysed and the company that is being valued and then to reflect these differences in the valuation.

31

Appendix 3 – Economic Analysis Having picked up in the early months of 2012, growth in the world economy has since softened. Current assessments are that global GDP will grow at no more than average pace in 2012, with risks to the outlook still on the downside. Economic activity in Europe is contracting, while growth in the United States is only modest. Growth in China remained reasonably robust in the first half of this year, albeit well below the exceptional pace seen in recent years. Some recent indicators have been weaker, which has added to uncertainty about near-term growth. Around Asia generally, growth is being dampened by the more moderate Chinese expansion and the weakness in Europe.

Markets for key natural resources are adjusting accordingly. Some commodity prices of importance to Australia have fallen sharply in recent weeks. The terms of trade peaked a year ago and have declined significantly since then, though they remain historically high. The commodity prices of some of Indonesia’s major exports have experienced a decline over the past quarter but remain relatively high when compared to prices historically.

Although economic growth has moderated in Europe, the United States and Asia generally, the Indonesian economy has displayed signs of being resilient. The growth rate in Indonesia increased from 6.1% in 2010 to 6.5% in 2011, representing the highest annual growth rate since 1996. Real GDP growth came down slightly to 6.3 percent year-on-year in the first quarter of 2012, following three consecutive quarters of 6.5 percent year-on-year growth.

The size of the domestic economy means that Indonesia is less likely to bear the full impact of the world economic slowdown. As such, under continuing economic conditions, growth in Indonesia is forecast to increase to 6.4% in 2013. However, lower commodity prices, weaker demand and investor uncertainty are all real short-term factors that can potentially slow down growth to below 5.0% in 2013.

The political environment in Indonesia is stable and the government has signalled its intention to support the development of the steel industry by expanding steel production capacity from five million tonnes to 100 million tonnes over the next 10 years. The government has increased its budget financing for infrastructure expenditure which is considered to be crucial for maintaining investor confidence and enhancing competitiveness in preparation for a potentially weakening global economic environment.

Source: www.rba.gov.au Statement by Glenn Stevens, Governor: Monetary Policy Decision 4 September 2012

www.worldbank.org/indonesia Indonesia Economic Quarterly: July 2012. Rising to present and future challenges

http://www.rba.gov.au/

http://www.worldbank.org/indonesia

32

Appendix 4 – Industry Analysis Iron sands are regarded essentially as a source of iron ore. The vanadium that is recoverable is seen as a credit and will have a beneficial effect on the attractiveness of the ore to the user.

Pig iron refers to the metallic product produced from smelting iron ore that contains over 90% iron. This term arose from the old-fashioned method of casting blast furnace iron into moulds arranged in sand beds in such a manner that they could be fed from a common runner. Because the groups of moulds resembled a litter of suckling pigs, the individual pieces of iron were referred to as pigs and the runner was referred to as a sow. Modern pigs are produced in a continuous pig-casting machine.

Pig iron is used in steelmaking as a high quality scrap substitute. Demand for pig iron has increased in recent years as a result of diminishing scrap reserves. It also offers steelmakers distinct advantages over other alternate iron sources. Pig iron contains low residuals, produces lower nitrogen steels, has a consistent chemistry, promotes optimal slag conditions and improves process control. Because of the advantages of pig iron it attracts a premium over scrap prices. There is an opportunity for local high quality low cost pig iron to replace the need for expensive, low quality imported scrap into Indonesia.

The global steel market has continued to grow over recent years. However, the rate of growth has gradually decreased. Growth is expected to continue to stabilize in 2012 and 2013. A significant proportion of the global demand for steel has been driven by the expansion driven demands of China and India. China in particular is expected to enter in a less intensive steel phase in 2013 supporting the outlook that growth in steel production will continue to moderate, albeit that it is expected to grow at a rate of 4 per cent. Steel demand growth in China decreased from approximately 8.3 per cent in 2010 to 7 per cent in 2012. A similar decline in growth of steel demand in China has been experienced in 2012 to date.

While China’s growth in steel demand slows demand growth in Indonesia continues to increase as the country looks to build core infra-structure. The Indonesian government is targeting an increase in domestic capacity from 5 million tones today to 100 million tones over the next 10 years.

The graphs below illustrate trends in global steel and pig iron production between 2009 and 2012.

33

Source: Bloomberg

The relevant index, Steel CIS Export Pig Iron Black Sea/Baltic Sea, over the same period observed a low of US$218 per metric tonne on 19 March 2009 and registered a high of US$545 per metric tonne in June 2011 and. The gradual recovery of the index over this period, as highlighted in the graph below, is reflective of the improvement in the economic environment following the recession in 2008. The effect of the euro zone debt crisis on the global steel market appears to have been limited thus far indicating further signs of stability. The last observed price was US$467.5/mt on 26 April 2012.

Source: Bloomberg

0

500

1,000

1,500

2,000

2009 2010 2011 2012

Met

ric

Tonn

es (m

illio

ns)

Global Production Volumes

Global Steel Production Global Pig Iron Production

0%

10%

20%

2010 2011 2012

Global Production Growth Rates

Global Steel Production Global Pig Iron Production

0

100

200

300

400

500

600

01-Jan-09 01-Jan-10 01-Jan-11 01-Jan-12

USD

/Met

ric

tonn

e

Steel CIS Export Pig Iron Index

Steel CIS Export Pig Iron Index

34

Appendix 5 – Independent Specialist Report – SRK

Valuation of the Jogja Iron Project

Report Prepared for

Indo Mines Limited

Report Prepared by

SRK Consulting (Australasia) Pty Ltd

Project Number: IML001

September 2012

SRK Consulting Page i

STEP/WARR IML001 Indo Mines Valuation Report Rev2 26 September 2012


Indo Mines Limited 68 South Terrace South Perth, WA 6151

SRK Consulting (Australasia) Pty Ltd

Level 2, 44 Market Street Sydney, NSW 2000

e-mail: [email protected] website: srk.com.au

Tel: +61 2 8079 1200 Fax: +61 2 8079 1222

SRK Project Number IML001

September 2012

Compiled by Peer Reviewed by

Anthony Stepcich Principal Consultant (Project Evaluations)

Mike Warren Corporate Consultant (Project Evaluations)

Email: [email protected]

Authors:

Anthony Stepcich; Francois Mienie.

mailto:[email protected]

SRK Consulting Page ii


Executive Summary

Geology and Resources

The Mineral Resource of Kulon Progo within the CoW Boundary has been classified as Measured

and Indicated based on the geological confidence, mineralisation continuity and statistical approach

represented by Kriging efficiency. The mineralised blocks coloured by classification are presented in

Figure ES 1.

Figure ES 1: Kulon Progo Resource Classification and Reporting Boundary

The global in-situ 2011 Mineral Resource estimate of the Kulon Progo Surface Sands deposit above

9% Fe lower cut-off and within the Contract of Works (CoW) is 230.6 Mt at 13.6% Fe as presented in

Table ES 1.

Table ES 1: Mineral Resource Estimate above 9% Fe Cut-off within CoW Boundary

Category Volume (m3) Tonnes (Mt) Fe (%)

Above water table Measured 19,493,000 37.2 12.8

Indicated 88,022,000 166.9 13.9

Below water table Measured 175,000 0.33 12.8

Indicated 14,102,000 26.2 12.6

Total 121,791,000 230.6 13.6

Note:

The resource is quoted from blocks above 9% Fe cut-off grade and includes material above and below the water table.

SRK Consulting Page iii


Reserve and Mining

The resource within the mining area has been classified as Measured and Indicated, which was

converted to a Probable Ore Reserve of 163.5 Mt at 13.73% Fe which is available for mining.

Within the overall resource model, only the surface sands which can be recovered by bulk dry mining

methods have been used for mine scheduling purposes.

The proposed mining method has changed since the Feasibility Study was published adopting a

implementation of the 2 million tonne per annum project. The updated plan uses a dry mining

operation feeding a Floating Primary and secondary concentrator plant which is loaded by an

excavator

Conditions which restrict the resources available for mining are:

CoW boundary

An exclusion zone extending 200 m inland from high water line

Dewatering limitations to a ‘surface’ 1 m below water table.

Table ES 2 presents a reconciliation of total resources including the mining restrictions, considered

in determining the Ore Reserve.

Table ES 2: Resource Reconciliation

Location Measured Indicated M+I Inferred M+I+I

Mt % Fe Mt % Fe Mt % Fe Mt % Fe Mt % Fe

Full Resource 37.5 12.75 199.4 13.73 236.9 13.57 84.3 13.43 321.2 13.53

Within the CoW 37.5 12.75 193.1 13.73 230.6 13.57 0 230.6 13.57

200 m Exclusion Zone 9.0 12.74 49.7 13.46 58.7 13.42 0 58.7 13.42

Below Water Table -1 m 0 0 8.4 11.50 8.4 11.50 0 8.4 11.50

Available for Mining 28.5 12.75 135.0 13.93 163.5 13.73 0 163.5 13.73

Key Project Parameters

Physicals

Key physical parameters are shown in Table ES 3.

Table ES 3: Key Physical Parameters

Parameter Units Value

Mine Life Years 13

Mine Throughput (av) Mt/a 13.5

Average Feed Grade % Fe 13.7

Recovery (BOD) % 59.8

Production 55% Fe Mt/a 2.0

Infrastructure

The project is close to the major city centre of Jogjakarta hosting a large national airport,

accommodation and health care facilities. Given the size of the commercial and industrial centre, the

city is well placed to support the operation, inclusive of goods, services and labour supply.

SRK Consulting Page iv


The Java-Bali Power Interconnection passes the Jogjakarta area providing the opportunity for power

to be supplied by the government-owned operator Perusahaan Listrik Negara (PLN). Power draw

estimated from the equipment list is 18.4 MW, with consumption of 131 M Kwh/a.

The main railway line from Jogjakarta to Bandung and Jakarta passes close to the property at

around 3.5 km north of Glagah.

The port of Tanjung Intan (Cilacap) is fully established and operational, located approximately

130 km west of the project area.

The port of Tanjung Glagah (Glagah) is located on the western boundary of the project area. The

port facility is under construction and will provide a location from which concentrate can be barged.

Implementation and Schedule

The main project milestones are presented in Figure ES 2.

Figure ES 2: Implementation Schedule

Pig Iron Production

ProMet Engineers were commissioned to collate costing and design information. Outotec Germany

together with ProMet generated design/costing for the construction of a 1 Mt/a pig iron smelter.

The pig iron making process under consideration is known by Outotec as “Circosmelt” and is a

combination of two technologies, the Circofer Circulating Fluid Bed (CFB) prereduction technology

and Electric Smelting.

The financial analysis indicates that the Pig Iron Plant scenario is financially viable and results in

strong financial returns. Although the project has a relatively short payback period of 8 years, the

high capital funding requirements and long project life required to generate acceptable returns result

in exposure to the key risk factor of future commodity prices, resulting in high financial risk. While the

project generates adequate financial returns to warrant further investigation, this must be assessed

in the context of the financial risk.

Q4Q1 Q2 Q3 Q4 Q1 Q2 Q1

2012 2013 2014 2015

Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4

2016

Q2 Q3 Q4

First concentrate

shipment

Environmental

Approval

Full scale concentrate

production

Secure project funding

- commence

construction

First pig iron production

BFS for pig iron

production

Consider funding

alternatives for pig iron

production

Commence construction

of pig iron facilities

SRK Consulting Page v


Valuation

SRK has undertaken a Discounted Cash-Flow valuation of the Jogja Iron Sands deposit. The

proposed project consists of two distinct stages:

Stage 1: Development of an Iron Sand Mines which produces an iron concentrate of 55% Fe grade

which is sold to end users.

Stage 2: Development of a Pig Iron Production plant on the Jogjakarta leases. Iron concentrate from

the mining operation is to be used as feedstock for the Pig Iron Plant which will produce Pig Iron at a

grade of min 95% Fe.

SRK has valued each of these stages as a discreet option, and then applied a probability to each

potential outcome, producing a probability weighted combined valuation for the Project as a whole,

as shown in Table ES 6.

The Upper, Lower & Preferred Valuations of the Iron Sands Operation and the Pig Iron Operation

can be seen below. The valuation range has been achieved by altering the discount rate as a

reflection of risk.

Table ES 4: Valuation ranges

The value of the two operations is linked. If the iron sands mine is built, then the Jogja JV has the

option to build the pig iron plant or not. SRK has undertaken a Probability weighted Valuation of

these two options, applying a probability to each outcome.

Iron Sands Valuation Discount Rate NPV

% US$M

Upper Valuation 6.38% $90.2

Preferred Value 7.38% $78.2

Lower Valuation 8.38% $67.4

Iron Sands & Pig Iron Valuation % US$M

Upper Valuation 6.38% $1,378.5

Preferred Value 7.38% $1,175.4

Lower Valuation 8.38% $1,003.8

SRK Consulting Page vi


Table ES 5: Probability Weighting

Table ES 6 shows SRK’s Valuation of the Jogjakarta Iron Sands Joint Venture.

Table ES 6: SRK Jogja JV Valuation

SRK has conducted a Sensitivity Analysis on the Jogja JV Valuation the results of which are shown

below.

Table ES 7: Sensitivity Analysis

Probability Weighted Valuation: Upper Valuation Probability Weighted Valuation

US$M % US$M

Project Approvals or Finance Unable to be Obtained 0 10% 0

Iron Sands Valuation $90.2 70% $63.1

Pig Iron Valuation $1,378.5 20% $275.7

Weighted NPV 100% $338.8

Probability Weighted Valuation: Preferred Valuation Probability Weighted Valuation

US$M % US$M





Probability Weighted Valuation: Lower Valuation Probability Weighted Valuation

US$M % US$M





SRK Valuation for the Jogja JV NPV

US$M

Upper Valuation $338.8

Preferred Value $289.9

Lower Valuation $247.9

Variance OPEX CAPEX Revenue

25% $78.2 $234.6 $624.7

20.0% $120.7 $245.6 $557.7

15.0% $163.1 $256.7 $490.8

10.0% $205.4 $267.7 $423.8

5.0% $247.7 $278.8 $356.8

0.0% $289.9 $289.9 $289.9

-5.0% $332.0 $300.9 $222.9

-10.0% $374.0 $312.0 $155.9

-15.0% $415.9 $323.0 $88.9

-20.0% $457.8 $334.1 $21.9

-25.0% $499.6 $345.2 ($45.1)

SRK Consulting Page vii


Figure ES 3: Sensitivity Analysis

($200.0)

$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Ne

t P

rese

nt

Val

ue

US$

M

Percentage Variance

Sensitivity Analysis

OPEX CAPEX Revenue

SRK Consulting Page viii


Table of Contents

Executive Summary ..................................................................................................................................... ii

1 Introduction and Scope of Report ............................................................................... 1

1.1 Reporting Standard ............................................................................................................................. 1

1.2 Statement of SRK Independence ....................................................................................................... 1

1.3 Representation .................................................................................................................................... 1

1.4 Indemnities .......................................................................................................................................... 2

1.5 Consents ............................................................................................................................................. 2

2 Project Overview .......................................................................................................... 3

2.1 Study Contributors .............................................................................................................................. 3

2.2 Location and Ownership ..................................................................................................................... 4

2.3 Market Analysis ................................................................................................................................... 5

2.4 Geology and Resources ..................................................................................................................... 8

2.5 Mining and Reserves .......................................................................................................................... 9

2.6 Metallurgical Testwork ...................................................................................................................... 10

2.7 Concentrating Plant........................................................................................................................... 12

2.8 Infrastructure ..................................................................................................................................... 13

2.9 Environmental Permitting .................................................................................................................. 13

2.10 Risk Management ............................................................................................................................. 14

2.11 Implementation Schedule ................................................................................................................. 16

3 Technical Valuation Approach .................................................................................. 17

3.1 Introduction ....................................................................................................................................... 17

3.2 Mineral Asset – development status ................................................................................................. 17

3.3 Valuation Approach and Valuation Methods ..................................................................................... 17

3.4 Income Base Approach and Methods ............................................................................................... 18

3.5 Market Based Approach and Methods.............................................................................................. 19

3.6 Cost Based Approach and Methods ................................................................................................. 20

3.7 Application to Valuation of Mineral Assets ........................................................................................ 21

3.8 Exploration Property and Advanced Exploration Property ............................................................... 21

3.9 Pre-Development, Development and Operating Property ................................................................ 22

3.10 Summary ........................................................................................................................................... 22

4 Discounted Cash-flow Valuation ............................................................................... 23

4.1 Stage 1: Iron Sands Valuation .......................................................................................................... 23

4.1.1 Physicals: .............................................................................................................................. 23

4.1.2 Revenues .............................................................................................................................. 23

4.1.3 Operating Costs .................................................................................................................... 24

4.1.4 Capital Costs ......................................................................................................................... 24

4.1.5 Valuation ............................................................................................................................... 25

SRK Consulting Page ix


4.2 Stage 2: Pig Iron Valuation ............................................................................................................... 26

4.2.1 Pig Iron Operation Physicals ................................................................................................. 26

4.2.2 Revenue ................................................................................................................................ 27

4.2.3 Operating Costs .................................................................................................................... 27

4.2.4 Capital Costs ......................................................................................................................... 27

4.2.5 Valuation ............................................................................................................................... 27

4.3 Stage 1 & Stage 2 Option Value ....................................................................................................... 27

4.3.1 Sensitivity Analysis ................................................................................................................ 28

List of Tables Table 2-1: Study Contributors ....................................................................................................................... 3

Table 2-2: Chemical Analysis % .................................................................................................................... 5

Table 2-3: Sizing Analysis ............................................................................................................................. 6

Table 2-4: Concensus Economics Price Forecast ........................................................................................ 7

Table 2-5: Seven Most Significant Risks ..................................................................................................... 16

Table 3-1: Valuation Approach .................................................................................................................... 21

Table 3-2: Valuation Method Ranking ......................................................................................................... 21

Table 4-1: LOM Physicals ........................................................................................................................... 23

Table 4-2: Consensus Economics Forecasts .............................................................................................. 24

Table 4-3: Forecast Operating Costs .......................................................................................................... 24

Table 4-4: LOM Capital Cost ....................................................................................................................... 25

Table 4-5: Discount Rate Calculation .......................................................................................................... 26

Table 4-6: SRK Iron Sands Valuation ......................................................................................................... 26

Table 4-7: Pig Iron Physicals ....................................................................................................................... 26

Table 4-8: Pig Iron Plant Valuation.............................................................................................................. 27

Table 4-9: Valuation ranges ........................................................................................................................ 28

Table 4-10: Probability Weighting ................................................................................................................. 28

Table 4-11: SRK Jogja JV Valuation ............................................................................................................. 28

Table 4-12: Sensitivity Analysis ..................................................................................................................... 29

List of Figures Figure 2-1: Location of the Project ................................................................................................................. 4

Figure 2-2: Contract of Work Official Location Map and Boundary ................................................................ 5

Figure 2-3: Steel Intensity (kg/capita/yr) ......................................................................................................... 6

Figure 2-4: 2005 and 2008 CoW Boundaries ................................................................................................. 8

Figure 2-5: General Mining and Processing Area Configuration .................................................................... 9

SRK Consulting Page x


Figure 2-6: Flowsheet for Testing Bulk Master Composite Sample ............................................................. 10

Figure 2-7: Horizon Sample Testwork Flowsheet ........................................................................................ 11

Figure 2-8: Effect of DTR Gauss Setting on Primary Recovery ................................................................... 12

Figure 2-9: AMDAL Process ......................................................................................................................... 14

Figure 2-10: Project Risk Profile ..................................................................................................................... 15

Figure 2-11: Profile of Significant Risks.......................................................................................................... 15

Figure 2-12: Implementation Schedule........................................................................................................... 16

Figure 4-1: Sensitivity Analysis ..................................................................................................................... 29

SRK Consulting Page xi


Disclaimer The opinions expressed in this Report have been based on the information supplied to SRK

Consulting (Australasia) Pty Ltd (SRK) by Indo Mines Limited (IML). The opinions in this Report are

provided in response to a specific request from IML to do so. SRK has exercised all due care in

reviewing the supplied information. Whilst SRK has compared key supplied data with expected

values, the accuracy of the results and conclusions from the review are entirely reliant on the

accuracy and completeness of the supplied data. SRK does not accept responsibility for any errors

or omissions in the supplied information and does not accept any consequential liability arising from

commercial decisions or actions resulting from them. Opinions presented in this Report apply to the

site conditions and features as they existed at the time of SRK’s investigations, and those

reasonably foreseeable. These opinions do not necessarily apply to conditions and features that

may arise after the date of this Report, about which SRK had no prior knowledge nor had the

opportunity to evaluate.

SRK Consulting Page 1


1 Introduction and Scope of Report SRK contracted with Indo Mines Limited (IML), and BDO controlled the scope of work for preparation

of an Independent Technical Assessment Report (Report) on the Jogja Iron Sands Project, located

near Jogjakarta on the island of Java, Indonesia. PT Jogja Magasa Iron is a joint venture between

Indo Mines Limited (70%) and PT Jogja Magasa Mining (JMM) (30%). The Report also includes a

valuation of the assets of IML.

The Report will be required as input into an Independent Expert’s Report (IER) prepared by BDO

and commissioned by IML.

1.1 Reporting Standard

This Report has been prepared to the standard of, and is considered by SRK to be, a Technical

Assessment Report and Valuation Report under the guidelines of the VALMIN Code. In this Report,

identified Mineral Resources and Ore Reserves are quoted using categorisation in accordance with

the JORC Code (2004) guidelines. The Report is prepared under the guidelines of the VALMIN

Code. Both Codes provide standards that are binding upon all members of the Australasian Institute

of Mining and Metallurgy (AusIMM) and the Australian Institute of Geoscientists (AIG). The VALMIN

Code incorporates the JORC Code for the reporting of Mineral Resources and Ore Reserves.

1.2 Statement of SRK Independence

Neither SRK nor any of the authors of this Report have any material present or contingent interest in

the outcome of this Report, nor do they have any pecuniary or other interest that could be

reasonably regarded as being capable of affecting their independence or that of SRK.

SRK has no prior association with Indo Mines Limited in regard to the mineral assets that are the

subject of this Report. SRK has no beneficial interest in the outcome of the technical assessment

being capable of affecting its independence.

SRK’s fee for completing this Report is based on its normal professional daily rates plus

reimbursement of incidental expenses. The payment of that professional fee is not contingent upon

the outcome of the Report.

1.3 Representation

Indo Mines Limited has represented in writing to SRK that full disclosure has been made of all

material information and that, to the best of its knowledge and understanding, such information is

complete, accurate and true.

As recommended by the VALMIN Code, IML has agreed to provide SRK with an indemnity under

which SRK is to be compensated for any liability and/ or any additional work or expenditure resulting

from any additional work required which results from SRK's reliance on information provided by IML

or to IML not providing material information; or which relates to any consequential extension

workload through queries, questions or public hearings arising from this Report.



1.4 Indemnities

As recommended by the VALMIN Code, Indo Mines Limited has provided SRK with an indemnity

under which SRK is to be compensated for any liability and/or any additional work or expenditure

resulting from any additional work required:

which results from SRK's reliance on information provided by Indo Mines Limited or to Indo

Mines Limited not providing material information; or

which relates to any consequential extension workload through queries, questions or public

hearings arising from this Report.

1.5 Consents

SRK consents to this Report being included, in full, in the BDO IER, in the form and context in which

the technical assessment is provided, and not for any other purpose. SRK provides this consent on

the basis that the technical assessments expressed in the Summary and in the individual sections of

this Report are considered with, and not independently of, the information set out in the complete

Report and the Cover Letter.



2 Project Overview Scope of the study included review of the Feasibility Study sections including the following:

Geology and Resources

Mining, Material Handling and Reserves

Metallurgy and Process Plant

Infrastructure

Product Handling and Ship Loading

Permitting, Community and Environment

Industrial Relations

Capital and Operating Costs

Financial Assessment

Risk Management

Implementation Schedule and Plan.

2.1 Study Contributors

The Feasibility Study was compiled by Battery Limits Pty Ltd (Battery Limits) with input from key

contributors as shown in Table 2-1.

Table 2-1: Study Contributors

Content Contributor

FS Management Battery Limits

Geology and Resources CSA

Mining and Reserves CSA

Metallurgy & Process Plant Battery Limits

Engineering EPMS

Power, Water, Transport and Infrastructure Resindo

Project Schedule & Implementation Plan EPMS/Battery Limits

Capital Cost Estimates EPMS/Resindo

Operating Cost Estimates Battery Limits/EPMS/CSA/Resindo

Permitting, Community and Environment URS

Industrial Relations Resindo

Marketing Ferrum

Financial Assessment Modus Capital

Risk Assessment PT Jogja Magasa Iron



2.2 Location and Ownership

The Jogja Iron Project is located in the Kulon Progo Regency within the Jogjakarta Special Province

(Daerah Istimewa Jogjakarta, DIY). The area of the CoW overlays the four sub-districts of Temon,

Wates, Panjatan and Galur on the south coast of Java in the Republic of Indonesia. Figure 2-1

shows the location of the Project.

Figure 2-1: Location of the Project

The primary legal entity under which the Jogja Iron project is being developed is PT. Jogja Magasa

Iron, a limited liability company established and existing under the laws of the Republic of Indonesia

by virtue of Notarial Deed.

The JMI Joint Venture shares at the time of the signing of the Agreement were owned 70% by Indo

Mines Limited, a company incorporated under Australian Corporations Law, and 30% by PT Jogja

Magasa Mining, a limited liability company established and existing under the laws of the Republic of

Indonesia.

The primary legal agreement under which the Jogja Iron Project is being developed is the Contract

of Work (‘CoW’) held by PT. Jogja Magasa Iron. This is a binding contract entered into between the

Government of the Republic of Indonesia on the 4th November 2008 represented by the Minister of

Energy and Mineral Resources of the Government of the Republic of Indonesia and PT. Jogja

Magasa Iron.



The CoW provides JMI the right to undertake exploration, mining and processing of iron sands and

the production of pig iron in the area of the CoW, see Figure 2-2.

Figure 2-2: Contract of Work Official Location Map and Boundary

2.3 Market Analysis

The product from the Kulon Progo deposit is a titaniferous magnetite ore, with high vanadium

content. Magnetite ores constitute 40-50% of iron ore consumed by the world’s steel industry.

Titaniferous magnetite ores constitute a minor sub-sector of the magnetite ores consumed by the

global steel industry.

Kulon Progo product will have a grain-size distribution that is typical of many magnetite concentrates

currently consumed by many sectors of the world’s steel industries.

Projected product quality is shown in Table 2-2 and Table 2-3.

Table 2-2: Chemical Analysis %

Fe SiO2 Al2O3 CaO MgO MnO TiO2 S P V

55.0 5.4 3.9 1.6 3.0 0.68 8.3 0.012 0.198 0.524



Table 2-3: Sizing Analysis

Size Fraction (µm) Mass % Cumulative Mass Passing

+150 1 99

-150+106 17.9 81.2

-106+75 31.8 49.3

-75+53 20.6 28.8

-53+38 9 19.8

-38 19.8 -

Iron sands are regarded essentially as a source of iron ore. The vanadium that is recoverable is

seen as a credit and will have a beneficial effect on the attractiveness of the ore to the user, but it is

the iron ore market which will have the strongest influence on the viability of the project.

Over the last ten years, there has been spectacular growth in demand for iron ore, driven almost

totally by China’s economic growth but supported by a decline in grade of China’s domestic ores.

Longer term, the modernisation of India’s economy is seen as a catalyst for continuing growth in

demand.

In terms of potential within the Indonesian market several key points are relevant: Indonesia sits at

the bottom end of the steel consumption curve, with an intensity of less than 25 kg/capita/year

(Figure 2-3), or one fifth of the intensity of economies classified as ‘developing’. Steel and hence iron

ore demand is expected to increase dramatically as the economy grows.

Figure 2-3: Steel Intensity (kg/capita/yr)



Steel imports comprised the largest single import item by value in Indonesia. To alleviate this

situation, Posco of South Korea has entered into a joint venture with the government-owned PT

Krakatau Steel to build a 6 Mt/a pig iron plant in Indonesia.

There is currently only one consumer of iron ore in the Indonesian iron and steel industry. Krakatau

Steel’s plant at Cilegon is a plant relying on high grade pellets from Brazil and Sweden to feed its

direct reduction plants prior to smelting by electric arc furnace. Other Indonesian steel plants rely on

imported, scrap, pig iron or semis such as billet as their feed stock. The above factors point to a

dramatic increase in the domestic demand for iron ore and pig iron as feedstock to both BF and

EAF-based steelworks.

Price forecasts reflect the outlook for the future supply-demand balance. The supply demand outlook

for iron ore fines (including concentrates and pellet feed) was for a relatively tight market in 2011,

especially in the first half, with a surplus starting to build up later in the year, becoming more

pronounced in the period out to 2014. As new capacity is absorbed after 2014, the supply surplus is

forecast to diminish progressively.

Table 2-4 represents independent analyst Consensus Economics view of the price outlook for

Australian high grade fines from the Pilbara (62% Fe).

While pricing data is scarce, it should be noted that the discount of the New Zealand Taharoa iron

sand product from the Pilbara HG fines product was 36.45% per Fe unit (FOB basis) for the last six

years of the benchmark pricing system, and this would be the basis of future price settlements.

Applying this discount to the Consensus Economics Price Forecast yields the following values for the

55% Fe iron sand product.

Table 2-4: Concensus Economics Price Forecast

Forecast Year 62% Australian Fines Discounted Concentrate Price

US$/dmtu US$/tonne @ 55% Fe

2012 $2.25 80.15

2013 $2.20 78.36

2014 $1.95 69.46

2015 $1.65 58.77

2016 $1.50 53.43

2017 $1.15 40.96

LTP $1.15 40.96



2.4 Geology and Resources

The bedrock geology of Java consists of a Lower Tertiary volcanic sequence with overlying Middle

Tertiary limestone. These rock types are in turn covered by later detrital deposits including alluvium

and iron sand beaches

The Kulon Progo iron beach sand deposit occurs between the outflows of Bogowonto and Progo

Rivers. These rivers, along with other rivers in the area were probably responsible for the

transportation of the material from the volcanic hinterland to the beach depositional environment.

The beach forms a platform raised about 5 m above sea level, behind which there are elongate 3 to

5 m high dunes largely parallel to the coast. The principal iron-bearing minerals in the dunes consist

of magnetite, titanomagnetite and ilmenite. Silicate minerals, which make up the bulk of the sands,

are primarily plagioclase, pyroxene and amphibole.

The Kulon Progo iron sand has been explored on a number of occasions under different Contracts of

Work. The current 2008 CoW of the Kulon Progo deposit is within an historic 2005 CoW Boundary

used by Mackay and Schnellmann to constrain the drilling as presented in Figure 2-4.

Figure 2-4: 2005 and 2008 CoW Boundaries



2.5 Mining and Reserves

The following mining methods were proposed in the Feasibility Study.

Excavators work on a bench between the surface and mine floor, direct loading a hopper on the

same level.

Excavators double bench, mining both the material from surface to the bench, and material from

mine floor to bench.

Track mounted, self-propelled hoppers will be fitted with suitable trash/oversize screens and

discharge conveyors to deliver ore onto a ‘grasshopper’ conveyor either on bench or on surface.

A series of grasshopper conveyors will deliver material onto a lateral conveyor, which in turn

feeds onto a spine conveyor feeding the Primary Concentrator Plant (PCP). This method has

been proposed as the main production equipment is not located on the mine floor which may

become unconsolidated when wet.

Since completing the Feasibility Study, following further work undertaken to optimise the operation,

the proposed mining method has been updated. The optimised plan uses a Floating Primary and

secondary concentrator plant loaded by excavator from the dry mining operation. The general

mining and processing area configuration is shown in Figure 2-5.

Figure 2-5: General Mining and Processing Area Configuration



2.6 Metallurgical Testwork

A bulk sample of Master Composite material was tested to demonstrate the expected metallurgical

performance of the proposed flowsheet at the optimum process conditions as determined in small

sample testing. The testwork also provided intermediate and final products for testwork covering

grinding energy requirements, product thickening, filtration performance and establishing the

Transportable Moisture Limit (TML).

The flowsheet for testwork on the bulk sample is presented in Figure 2-6.

Figure 2-6: Flowsheet for Testing Bulk Master Composite Sample

The final Fe recovery from this combined primary and secondary testing is 56.9% (67.3% x 84.6%)

at the target grade of 55% Fe.

The potential to produce high grade products at a grade of 58-59% Fe using two stages of

grinding/magnetic separation was also tested. Magnetic separation by DTR was used in the final

concentration stage.

Low Intensity Magnetic Separation (LIMS) rougher concentrate produced after an initial grind of P80

106 μm was further ground to varying sizes between 20 and 75 μm. The finely ground samples

were then subjected to Davis Tube Recovery (DTR) testing.

The DTR tests show that a grade of over 58% Fe can be achieved at a P80 ground size of 38 μm

which is consistent with the 1973 Amdel testwork.



A similar programme to the bulk Master Composite testwork was performed on the three horizon

composites 0-3 m, 3-6 m, and 6-9 m. A simplified flowsheet for tests on the horizon composite

samples is presented in Figure 2-7.

Figure 2-7: Horizon Sample Testwork Flowsheet

The results show that concentrate quality and iron recovery decreased significantly with depth.

Although the top 0-3 m horizon and Master Composite made target grade, the two deeper horizons

were less than the target 55.0% Fe. The mining methodology ensures the whole face is extracted

removing the need for blending to achieve final product grade.

DTR tests were used to provide further information on the effect of field intensity on primary roughing

performance. Horizon Samples, as received, were subjected to field intensities of 1000, 1500 and

2000 G. All three samples show a significant increase in Fe recovery for a field intensity increase

from 1500 to 2000 G. The DTR test results also confirm the variance in response with depth as

shown in Figure 2-8.



Figure 2-8: Effect of DTR Gauss Setting on Primary Recovery

The key observations and conclusions from past and current testwork programmes are:

Beneficiation by LIMS proved to be the optimum beneficiation unit process. The use of gravity

processing did not offer any advantages to the processing by LIMS alone.

A concentrate product at the target 55% Fe can be obtained with a simple flowsheet involving:

primary LIMS at 2000 G; grinding of LIMS magnetics at P80 of 106 μm; and secondary LIMS

with cleaning at 1000 G. The recovery of iron to concentrate for this process option was

determined to be 56.9%.

The upper horizons of the deposit have significantly superior metallurgical performance in terms

of liberation characteristics and quality of final product. The lower horizons require a finer grind

to achieve target grade, and at significantly lower Fe recovery. The full face mining technique

covering all horizons will provide a constant blend to the secondary concentrator.

A higher grade concentrate grade of 58-59% Fe can be achieved with additional grinding to a

grind size of P80 of 38-53 μm.

No other potential mineral sand by-products such as ilmenite, rutile, zircon are were present in

commercial grades.

2.7 Concentrating Plant

Summary Processing Description

The Primary Concentrator Plants (PCPs) are located on a floating pond on the ore-body and move

as mining progresses. The PCPs perform screening and initial low intensity magnetic separation, so

as to reject a large portion of gangue minerals close to the mining area and reduce the tonnage of

concentrate to be milled. Coarse tailings are pumped as slurry to the back-fill area of the mining

operations, and coarse primary concentrate is pumped as slurry to the Secondary Concentrator

Plant (SCP).



The SCP is located on the floating pond on the ore-body, comprising of Verti-mill circuits to achieve

a grind of P80 of 106 μm, magnetic separation circuits (LIMS rougher and three cleaner stages), to

produce a 55% Fe product and tailings. The fine tailings are pumped back to the mine backfill area.

The product is dewatered by vertical plate membrane pressure filters, with the aim of achieving less

than 9% moisture by mass. The concentrate filter drops moist magnetite product directly onto a filter

cake discharge feeder. The combined cake discharge from the filters is transferred via conveyor to

the stockpiles in the product handling and storage area for dispatch on barges through Glagah port.

2.8 Infrastructure

The project is close to the major city centre of Jogjakarta hosting a large national airport,

accommodation and health care facilities. Given the size of the commercial and industrial centre,

the city is well placed to support the operation, inclusive of goods, services and labour supply.

The Java-Bali Power Interconnection passes the Jogjakarta area providing the opportunity for power

to be supplied by the government owned operator Perusahaan Listrik Negara (PLN). Power draw

estimated from the equipment list is 18.4 MW, with a total consumption of 131 M kWh/a.

The main railway line from Jogjakarta to Bandung and Jakarta passes close to the property at

around 3.5 km north of Glagah.

The port of Tanjung Glagah is located on the western boundary of the project area. This port is

under construction and will provide a facility from which product can be barged. The port of Tanjung

Intan (Cilacap) is fully established and operational, located approximately 130 km west of the project

area. It is one of only a few ports on the south coast of Java that can service vessels of a

reasonable size; the harbour is protected from Indian Ocean swells and monsoons by an elongated

island which also provides opportunity for barge-to-vessel transhipment. The port has a number of

wharves and a water depth in the range of 10 m. The maximum berthing capacity is officially rated

at 40,000 DWT by the Port Authority.

2.9 Environmental Permitting

The primary permitting process related to environmental management is equivalent to an

Environmental Impact Assessment (Analisis Mengenai Dampak Lingkungan AMDAL). Under the

scope of the AMDAL, both environmental and community impacts are to be assessed and managed.

The process for the establishment of the AMDAL is presented in Figure 2-9.

The KA-ANDAL for the Jogja Iron Project was approved by the regional government of Kulon Progo

(Bupati Kepala Daerah Kabupaten Kulon Progo) on 11 January 2011 and in January 2012 the

AMDAL was approved.



Figure 2-9: AMDAL Process

2.10 Risk Management

A total of 73 project risks were identified during the risk assessment conducted as part of the 2011

Feasibility Study, the significant and high risks have been reviewed to account for further work

undertaken, general project progress and other changes. This has resulted in two significant risks

being removed entirely and the remaining distributed as presented below in Figure 2-10.



Figure 2-10: Project Risk Profile

The risk profile remains skewed to the high risk end of the spectrum, with 45% of identified risks

being either High or Significant; but the total risk numbers have been reduced.

The profile of significant risk areas shown in Figure 2-11 indicates that land acquisition and

community issues combined with access to effective infrastructure, in particular efficient product

transport dominate. This indicates that resources must be directed to finalising access to the site

through gaining approvals and effective engagement of the community. Technical risk in operations

should not be underestimated but from a risk management perspective is currently not the major

focus.

Figure 2-11: Profile of Significant Risks

The most significant risks from the risk ranking are identified below in Table 2-5.



Table 2-5: Seven Most Significant Risks

Significant Level Risks

1 Land lease & acquisition not finalised

2 Hydrology assumptions invalid and affect mining method and reserves

3 Shipment parcel size unattractive to market

4 Glagah Port construction not completed on time

5 Rehabilitaion standards not achieved

6 Air quality impacts restrict construction & operational activity

7 Noise generated by operation impacts on local community

2.11 Implementation Schedule

The schedule indicates a critical path that is currently driven by the lead times for the supply of the

verti mills and the engineering design. It is planned that the verti mills will be the focus of initial

design work so that procurement can be initiated as quickly as possible. Other aspects of the

remainder of the project schedule are also on a tight schedule with little slack. Early completion of

the engineering design and subsequent appointment of fabrication and construction contractors

offers the greatest opportunity to reduce the time taken for the design and construction phase. As

announced by IDL, it is also giving consideration to the phased implementation of the project which

would expedite its ability to produce under the implementation schedule.

Figure 2-12: Implementation Schedule

Q4Q1 Q2 Q3 Q4 Q1 Q2 Q1

2012 2013 2014 2015

Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4

2016

Q2 Q3 Q4

First concentrate

shipment

Environmental

Approval

Full scale concentrate

production

Secure project funding

- commence

construction

First pig iron production

BFS for pig iron

production

Consider funding

alternatives for pig iron

production

Commence construction

of pig iron facilities



3 Technical Valuation Approach

3.1 Introduction

The following section provides discussion and comment on the valuation approach and

methodologies adopted by SRK in determining the Technical Value for IML. Valuation methods in

common usage for mineral assets are dependent on numerous factors including and not necessarily

limited to: the nature of the valuation undertaken; the development status of the mineral assets; and

the extent and reliability of available information.

3.2 Mineral Asset – development status

In accordance with Valmin Code 2005, mineral assets comprise all property including but not limited

to real property, intellectual property, mining and exploration tenements held or acquired in

connection with the exploration of, the development of and the production from those tenements

together with all plant, equipment and infrastructure owned or acquired for the development,

extraction and processing of minerals in connection with those tenements.

Most mineral assets can be classified as either:

Exploration Property: properties where mineralisation may or may not have been identified, but

where a Mineral Resource has not been identified;

Advanced Exploration Property: properties where considerable exploration has been

undertaken and specific targets have been identified that warrant further detailed evaluation,

usually by drill testing, trenching or some other form of detailed geological sampling. A Mineral

Resource estimate may or may not have been made, but sufficient work will have been

undertaken on at least one prospect to provide both a good understanding of the type of

mineralisation present and encouragement that further work will elevate one or more of the

prospects to the resource category;

Pre-Development Property: properties where Mineral Resources have been identified and their

extent estimated (possibly incompletely) but where a decision to proceed with development has

not been made. Properties at the early assessment stage, properties for which a decision has

been made not to proceed with development, properties on care and maintenance and

properties held on retention titles are included in this category if Mineral Resources have been

identified, even if no further Valuation, Technical Assessment, delineation or advanced

exploration is being undertaken;

Development Property: properties for which a decision has been made to proceed with

construction and/or production, but which are not yet commissioned or are not yet operating at

design levels; and

Operating Mines: mineral properties, particularly mines and processing plants that have been

commissioned and are in production.

Accordingly, SRK considers on this basis that the IML can be classified as a Development Property.

3.3 Valuation Approach and Valuation Methods

In general there are three main generally accepted analytical valuation approaches that are in

common use for determining Fair Market Value (defined below) of mineral assets, each of which is

described below and which largely rely on the principle of substitution, using market derived data.



The “Fair Market Value” is defined in the Valmin Code 2005 as, in respect of a mineral asset, the

amount of money (or the cash equivalent of some other consideration) determined by the relevant

expert in accordance with the provisions of the Valmin Code 2005 for which the mineral asset should

change hands on the relevant date in an open and unrestricted market between a willing buyer and a

willing seller in an ‘arm’s length’ transaction, with each party acting, knowledgeably, prudently and

without compulsion. The Fair Market Value is usually comprised of two components, the underlying

Technical Value (defined below) of the mineral asset, and a premium or discount related to market,

strategic or other considerations.

The “Technical Value” is defined in the Valmin Code 2005 as, an assessment of a mineral asset’s

future net economic benefit at the valuation date under a set of assumptions deemed most

appropriate by a relevant expert or specialist, excluding any premium or discount to account for such

factors as market or strategic considerations.

Valuation methods are, in general, subsets of valuation approaches and for example the Income

Based Approach comprises several methods. Furthermore, some methods can be considered to be

primary methods for valuation while others are secondary methods or rules of thumb considered

suitable only to benchmark valuations completed using primary methods.

In summary, however, the various recognised valuation methods are designed to provide the most

accurate estimate of the mineral asset or property value in each of the various categories of

development. In some instances, a particular mineral asset or property or project may comprise

assets which logically fall under more than one of the previously discussed development categories.

3.4 Income Base Approach and Methods

The “Income Based Approach” (also referred to as the Income Capitalisation Approach) considers

income and expense data relating to the mineral asset or property being valued and estimates value

through a capitalisation process. Accordingly, this is based on the principle of anticipation of benefits

and includes all valuation methods that are based on the income or cash-flow generation potential of

the mineral asset or property.

The underlying theory of this approach is that the value of the mineral asset or property can be

measured by the present worth of the economic benefits to be received over the useful life of the

mineral asset or property. Based on this valuation principle, the Income Based Approach estimates

the future benefits and discounts them to their present values using a discount rate appropriate for

the risks associated with realising those benefits.

Alternatively, this present value can be calculated by capitalising the economic benefits to be

received in the next period at an appropriate capitalisation rate. This is, however, subject to the

assumption that the mineral asset or property will continue to maintain stable economic benefits and

growth rate.

For the Income Based Approach, the most widely used valuation method applied for mineral assets

or properties (pre-development, development and operating mines) is discounted cash flow (“DCF”).

This method considers the majority of factors that influence the value of the business enterprise,

including expected changes in the mineral asset or property’s operating activity and profitability.

The approach requires three elements:

A forecast of the expected future cash flows;

The selection of an appropriate discount rate;

A determination of terminal value, beyond the forecast period if considered applicable.



Under this approach, it is necessary to utilize projections of revenues, operating expenses,

depreciation, income taxes, capital expenditures, and working capital requirements. The present

value of the resulting cash flows provides an indicated value of the total invested capital in the

operating business enterprise. In order to eliminate the impact on value of the different long-term

financing options available to a potential purchaser of the business, analysis is generally made on a

debt-free basis. That is, the projections themselves have not considered the use of borrowed

money. Prospective financing structures are however considered in determining an appropriate

discount rate.

The projected real terms cash flows are discounted using end-point discounting and the sum of the

present values of the discounted interim cash flows and the discounted terminal value (if applicable)

are added to provide an indication of value for the mineral asset or property appraised, commonly

referred to as the net present value (“NPV”).

3.5 Market Based Approach and Methods

The “Market Based Approach” (also referred to as the Sales Comparison Based Approach)

considers the sales of similar or substitute mineral assets or properties and related market data, and

establishes a value estimate by process involving comparison. For the mining and metals sector the

methodologies applied are by consideration of indirect means which seeks to compare the subject

mineral asset or property to similar mineral assets or properties which have been sold / transacted in

an open market. Accordingly, value in this instance is established by the principle of substitution

which simply means that if one thing is similar to another and could be used for the other, then they

must be equal. Furthermore, the price of two alike and similar items should approximate one

another.

Examples of valuation of methods employed for the Market Based Approach include the guideline

company methods, the guideline transaction method, the analysis of prior transactions in the

ownership of the subject company, and the rules of thumb. The mineral asset or property used for

comparison must serve as a reasonable basis for comparison and factors to be considered in

judging whether a reasonable basis for comparison exists include:

A sufficient similarity of qualitative and quantitative investment characteristics;

The amount and verifiability of data known about the similar investment;

Whether or not the price of the similar investment was obtained in an arm’s length transaction, or

a forced or distressed sale.

The “Guideline Companies Method” (also the “Guideline Public Companies Method”), is a method

within the market approach, whereby share prices of similar, actively traded publicly owned

companies are applied to the subject company through valuation multiples. The “Guideline

Transaction Method”, (also the “Merger and Acquisition Methodology”), is a method within the

market approach whereby pricing multiples are derived from transactions of significant interests in

public or privately owned companies engaged in the same or similar lines of business.

Indicators of value normally applied include the following ratios:

Market Value of long term debt plus market capitalisation less net working capital (“long-term

assets”) divided by sales revenue;

Market Value of long term assets divided by earnings before interest taxation depreciation and

amortisation (“EBITDA”);

Book value of shareholders equity;



Market value or transaction price divided by: the total equivalent units of contained metal/mineral

included in Mineral Resources or Ore Reserves, annual production capacity of metal/minerals,

area of mineral concessions expressed in km2 or ha;

The ratio of the market value or transaction price to the total equivalent units of contained

metal/mineral included in Mineral Resources or Ore Reserves divided by the current spot price

of the relevant metal/mineral.

3.6 Cost Based Approach and Methods

The “Cost Based Approach” (also referred to as the Asset-Based Approach) considers the

possibility that, as a substitute for the purchase of a given mineral asset or property, one could

construct another mineral asset or property that is either a replacement of the original or one that

could furnish equal utility.

Accordingly, this is based on the principle of contribution to value which relies on the general

concept that the earning power of a mineral asset or property is derived primarily from the value of

the assets net of liabilities. The assumption of this approach is that when each of the elements of

working capital, tangible and intangible assets is individually valued, their sum represents the value

of a mineral asset or property and equals to the value of its invested capital (“equity and long term

debt”). In other words, the value of the mineral asset or property is represented by the money that

has been made available to purchase the mineral assets or property needed.

The Cost Based Approach is generally not appropriate for valuing mineral assets or properties

however this is normally applied for valuing tangible assets other than mineral assets or properties.

Typical methods applied in this case include the “depreciated replacement cost method” and

“market method”.

The International Valuation Standards (“IVS”) recognise that there are categories of assets for which

market-based evidence may be unavailable because of their specialised nature. Property that is

rarely, if ever, sold in the market, except by way of a sale of the business or entity of which it is part,

due to uniqueness arising from its specialised nature and design, its configuration, size, location, or

otherwise, is called “Specialised Property”.

Property, plant and equipment that are commonly traded in the market must be distinguished from

specialised assets. Upon consideration of relevant facts, property accounted as transport, office

furniture, office equipment and computers, are generally concluded to have a secondary market. The

other fixed assets are designated as “Specialised Assets”.

Data for fair (market) value estimates for machinery and equipment which are subject to valuation

are generally determined based on producers and dealers price lists for equivalent new assets

taking into account secondary market data related to changes in equivalent asset value depending

on age and physical condition of the property.

IVS endorse the application of either a ‘market method’ income or ‘depreciated replacement’ cost

approach to the valuation of Specialised Property. Depreciated replacement cost method is

considered appropriate in assessing the value of Specialised Assets for financial reporting purposes,

where direct market evidence is limited or unavailable. The majority of the plant and equipment for

mineral assets and properties are concluded to be Specialised Property. Therefore the depreciated

replacement cost approach is primarily used in estimating the fair value of the specialised

operational tangible fixed assets, as required by IVS.

Typical considerations used as part of depreciated replacement cost approach are the cost of new

tangible fixed assets less physical deterioration, and the cost of new less physical deterioration and

functional obsolescence.



3.7 Application to Valuation of Mineral Assets

The application of valuation approach and method to mineral assets is largely dependent upon

determined development status. Table 3-1 specifically compares the application of the three

valuation approach categories to mineral assets classified as: Exploration Property; Advanced

Exploration Property; Development Property; or Operating Property.

Table 3-2 provides an assessment of the application of differing valuation methods within each

valuation approach as well as their relative ranking.

Table 3-1: Valuation Approach

Table 3-2: Valuation Method Ranking

3.8 Exploration Property and Advanced Exploration Property

In the case of an Exploration Property, and to a lesser extent an Advanced Exploration Property, the

potential is more speculative and the valuation is dependent to a large extent on the informed,

professional opinion of the valuator. Where useful previous and committed future exploration

expenditure is known or can be reasonably estimated, the Multiple of Exploration Expenditure

(“MEE”) method is considered to represent one of the more appropriate valuation techniques. This

method involves assigning a premium or discount to the relevant effective Expenditure Base (“EB”),

represented by past and future committed expenditure, through application of a Prospectivity

Enhancement Multiplier (“PEM”). This factor directly relates to the success or failure of exploration

completed to date, and to an assessment of the future potential of the asset. The method is based

on the premise that a ‘grass roots’ project commences with a nominal value that increases with

positive exploration results from increasing exploration expenditure. Conversely, where exploration

results are consistently negative, exploration expenditure will decrease along with the value.



The MEE method (also known as the Past Expenditure Method) relies on the assumption that well

directed exploration adds value to a property. This is not always the case and exploration can also

downgrade a property. The PEM which is applied to the effective expenditure therefore commonly

ranges from 0.5 to 3.0. The PEM generally falls within the following ranges:

0.5 to 1.0 where work to date or historic data justifies the next stage of exploration;

to 2.0 where strong indications of potential for economic mineralisation have been identified;

2.1 to 3.0 where quality intersections or exposures indicative of economic resources are present.

Where Mineral Resources remain in the Inferred Mineral Resource category, reflecting a lower

perceived level of technical confidence, the application of mining parameters is inappropriate and

their economic value may not be demonstrated using the more conventional DCF/NPV approach. A

similar situation may apply where economic viability cannot be readily demonstrated for a Mineral

Resource assigned to a higher confidence category. In these instances it is frequently appropriate to

adopt the in situ Mineral Resource (or “Yardstick”) method of valuation for these mineral assets or

properties. This technique involves application of a heavily discounted valuation of the total in-situ

metal contained within the resource. Historically, this usually equates to a range of 2.0% to 4.5% of

the spot commodity price as at the valuation date, but may vary substantially in response to a range

of additional factors including physiography, infrastructure and the proximity of a suitable processing

facility.

3.9 Pre-Development, Development and Operating Property

Mineral assets and or properties which are classified as either a Pre-Development, Development or

Operating Property are generally accompanied by Measured and Indicated Mineral Resources and

Ore Reserves, specifically where technical studies completed to a minimum of pre-feasibility study

level demonstrate that extraction is both technically feasible and economically viable. In such

instances mining and processing assumptions, operating expenditures and capital expenditures are

either known or can be reasonably determined. Accordingly valuations can be derived with a

reasonable degree of confidence by compiling a DCF and determining the NPV.

3.10 Summary

Following consideration of the supporting technical documentation in respect of the IML deposit,

SRK considers that the property development status to be at a Pre-Development Property level.

Accordingly SRK have decided on the Income Based Approach and specifically the DCF

methodology as its valuation method.



4 Discounted Cash-flow Valuation SRK has undertaken a Discounted Cash-Flow valuation of the Jogja Iron Sands deposit. The

proposed project consists of two distinct stages:

Stage 1: Development of an Iron Sands Mine which produces an iron concentrate grading 55%

which is sold to end users. This has been based on the assumptions included within the Feasibility

Study and modified for the proposed change to mining method.

Stage 2: Development of a Pig Iron Production plant on the Jogja leases. Iron concentrate from the

mining operation is to be used as feedstock for the Pig Iron Plant which will produce Pig Iron at a

grade of 95% Fe.

SRK has valued each of these stages as a discreet option, and then applied a probability to each

potential outcome, producing a probability weighted combined valuation for the Project as a whole.

4.1 Stage 1: Iron Sands Valuation

Development of an Iron Sands Mines which produces an iron concentrate grading 55% which is sold

to end users.

4.1.1 Physicals:

Table 4-1 shows the Life of Mine (LOM) Physicals evaluated in SRK’s DCF Model.

Table 4-1: LOM Physicals

4.1.2 Revenues

The iron ore and concentrate prices used in the DCF Model were sourced from Consensus

Economics Forecasts, as shown in Table 4-2 below.

Iron Sand Mining Operations Physicals

Ore Mined dt 169,976,000

Head Grade Fe % 13.2%

Fe Metal Contained dt 22,404,478

Sand Mining Recovery % 95%

Fe Mining Recovery % 98%

ROM Production Ore tonnes dt 161,477,200

ROM Head Grade % 13.6%

ROM Fe Metal Contained dt 22,023,602

Pre-Concentrator Sand Recovery Rate % 32.50%

Pre-Concentrator Fe Recovery Rate % 67.30%

Pre-Concentrate Sand t 52,480,090

Pre-Concentrate Fe t 14,821,884

Pre-Concentrate Fe Grade % 28.24%

Concentrator Sand Recovery % 46.50%

Concentrator Fe Recovery % 87.10%

Concentrate Sand t 23,472,475

Concentrate Fe t 12,909,861

Concentrate Fe Grade % 55.00%



Table 4-2: Consensus Economics Forecasts

An Ad-Valorum Royalty of 3.75% is also payable on the concentrate revenue.

4.1.3 Operating Costs

The operating cost estimate includes all site-related operating costs associated with mining and

processing ore to produce a 55% Fe Iron Sands Product and product transport on an FOB ship

basis.

The operating cost estimate was developed based on an annual production of 2.0 Mt/a of 55% Fe

product; varying mining rates were required to achieve this ranging from 12.3 to 14.3 Mt/a which are

reflected in the project financial model. The LOM cost per tonne of product is US$26.35/t.

A summary of the total annual operating cost, broken down by cost type, is presented in Table 4-3.

Table 4-3: Forecast Operating Costs

4.1.4 Capital Costs

The capital cost estimate prepared by EPMS (with input from others) covers the forecast cost of

managing, designing, procuring and constructing a 14 Mt/a dry mining operation to produce 2.0 Mt/a

iron sand concentrate including production, storage and barge loading system. The capital estimate

including 15% contingency is US$160M. The estimate is considered to have an accuracy of ±25%,

but no formal analysis of the accuracy of the estimate has been done to-date.

The methodology used to prepare the Capex estimate is summarised as follows:

Major mechanical equipment items were selected either by vendor enquiry or vendor published

performance specifications

Major mechanical equipment items were generally priced either by sole source vendor budget

quotations, or from recent quotations on EPMS’ database

Forecast Year 62% Australian Fines Discounted Concentrate Price

US$/dmtu US$/tonne @ 55% Fe

2012 $2.25 80.15

2013 $2.20 78.36

2014 $1.95 69.46

2015 $1.65 58.77

2016 $1.50 53.43

2017 $1.15 40.96

LTP $1.15 40.96

Cost Centre Total LOM OPEX Unit Cost per tonne

US$M of Concentrate

Mining $69,283,017 $2.95

Pre-Concentrator $46,648,225 $1.99

Concentration $138,256,362 $5.89

Rehabilitation $15,160,067 $0.65

Shipment $243,941,927 $10.39

Direct Administration $32,651,417 $1.39

Indirect Administration $38,859,280 $1.66

Local & Regional Development Funds $33,668,167 $1.43

Total OPEX $618,468,463 $26.35



Bulk quantity components were estimated by preparing Material Take-Offs to determine

quantities. Unit rates from vendor supplied budget prices were applied

Electrical costs were determined by using vendor and recent database prices for major

components, and preparation of MTOs and application of unit rates

Civil and structural costs for the Filter Plant were calculated using MTOs and unit rates. Civil and

structural costs for the PCPs and SCP were factored from the mechanical equipment value

In-plant piping and overall mechanical installation costs were factored from the mechanical

equipment value

Factored allowances were used for minor mechanical equipment, field piping fittings, and freight

of all components

Indirect costs are mostly factored from the total direct costs.

The capital cost estimate and the estimated project costs from completion of this study to operations

hand-over are presented in Table 4-4.

Table 4-4: LOM Capital Cost

Indirect costs are those costs and expenses incurred by the project owner in executing the project,

and include owner’s team costs, EPCM, other studies, overheads during project execution, and

commissioning costs amongst others.

Indirect costs are calculated at 17% of the project costs before a contingency is added. Estimates of

deferred and sustaining capital costs are:

Deferred capital is limited to the purchase of additional PCP concentrate field pumping and

piping (and associated electrical equipment), required in year five when the mining operation

moves to the south-eastern end of the deposit

Sustaining capital amounts are included for the scheduled replacement of mobile equipment. A

replacement allowance of 15% of the PCP Tailings and Concentrate piping per annum

commences in year three and continues annually until one year prior to the end-of-mine date.

4.1.5 Valuation

SRK has calculated that a Real Discount Rate of 7.38% should be used in this Valuation. The

discount rate calculation can be seen in Table 4-5.

CAPEX Cost Centre US$M

Direct - Mining 10,643,486$

Direct - Primary Concentrator Plant 22,582,499$

Direct - Secondary Concentrator Plant 43,106,192$

Direct - Transport and Logistics 6,770,662$

Direct - Infrastructure and Services 8,313,385$

Indirect - Engineering Costs 31,401,144$

Direct - Filter Plant 4,657,024$

Contingency (15% of Direct Costs) 19,121,159$

Sustaining Capital 13,878,968$

Total Capex 160,474,518$



Table 4-5: Discount Rate Calculation

Table 4-6 shows SRK’s valuation of the Stage 1 Iron Sands Operation.

Table 4-6: SRK Iron Sands Valuation

4.2 Stage 2: Pig Iron Valuation

Development of a Pig Iron Production plant on the Jogja leases. Iron concentrate from the mining

operation is to be used as feedstock for the Pig Iron Plant which will produce Pig Iron at a minimum

grade of 95% Fe. SRK consider the IML Pig Iron Study to be at Scoping Study Level. Factored

costs have been used which do not have the same estimate accuracy as in the feasibility study for

the concentrate operation.

4.2.1 Pig Iron Operation Physicals

Table 4-7 shows the LOM physicals evaluated in SRK’s Pig Iron DCF Valuation.

Table 4-7: Pig Iron Physicals

Discount Rate CalculationIndonesia Central Bank Rate 5.75%

Market Risk Premium 6.00%

Beta 1.5

Cost of Equity 14.75%

Debt Margin 3.00%

Cost of Debt 8.75%

Indonesia Tax Rate 25.00%

Post-tax cost of debt 6.6%

Target Debt Equity Ratio [D/(D+E)] 30.0%

Weighted Average Cost of Capital- WACC Nominal 12.29%

Indonesian Inflation Rate 4.58%

WACC in Real terms 7.38%

Valuation Cashflows US$M

Revenue $1,048.03

Royalty $39.30

OPEX $618.47

CAPEX $160.47

Tax $0.00

ATCF $229.79

Discount Rate 7.38%

Net Present Value as at 15/09/2012 101.14

Internal Rate of Return 21.8%

Pig Iron Concentrate Feed Mt 49.92

Pig Iron Fe Feed Mt 27.46

Pig Iron Fe Feed Grade % 0.55

Fe Recovery from Pig Iron Process % 92%

Fe Recovered from Pig Iron Process Mt 25.26

MPI Pig Iron Grade Fe % 95%

Tonnes of Pig Iron Produced Mt 26.59

V2O5 Grade % 0.52%

V2O5 Recovery % 63%

V2O5 Produced Mt 0.16



4.2.2 Revenue

The 2011 Feasibility Study stated a sales price of US$450/t of Pig Iron produced as at June 2011.

SRK has escalated this price to September 2012 Real Terms by applying a 3%pa escalation rate,

resulting in a new sales price of US$467/t Product.

4.2.3 Operating Costs

The 2011 Feasibility study stated an operating cost of US$291/t of Pig Iron produced as at June

2011. SRK has escalated this cost to September 2012 Real Terms by applying a 3%pa escalation

rate, resulting in a new operating cost of US$302/t Product. This cost includes the operating cost to

mine the concentrate and process it through the pig iron plant.

4.2.4 Capital Costs

The 2011 Feasibility study has stated an expansionary capital cost of US$510M as at June 2011.

SRK has escalated this cost to September 2012 Real Terms by applying a 5%pa escalation rate,

resulting in a new expansionary capital cost of US$542Mt.

There is a capital cost of $242M for the “Circosmelt support infrastructure” which has not been

included in this valuation, as Indo Mines has stated that this capital will be supplied by external

parties.

4.2.5 Valuation

SRK used a Discount Rate of 7.38% in its valuation of the Pig Iron Plant. The derivation of this

Discount Rate can be seen in Table 4-5.

The Pig Iron operation will be subject to a 25 year tax holiday from the Indonesian Government.

Table 4-8 below shows the results of SRK’s DCF valuation of the Pig Iron Plant.

Table 4-8: Pig Iron Plant Valuation

4.3 Stage 1 & Stage 2 Option Value

The Upper, Lower & Preferred Valuations of the Iron Sands Operation and the Pig Iron Operation

can be seen below. The valuation range has been achieved by altering the discount rate as a

reflection of risk.

Valuation US$M

Revenue $13,981.5

Royalties $441.4

OPEX $8,606.7

CAPEX $823.1

Tax $38.1

ATCF $4,072.2

Discount Rate 7.38%

Net Present Value $1,175.4

IRR 26.0%



Table 4-9: Valuation ranges

The value of the two operations is linked. If the iron sands mine is built, then the Jogja JV has the

option to build the pig iron plant or not. SRK has undertaken a Probability weighted Valuation of

these two options, applying a probability to each outcome.

Table 4-10: Probability Weighting

Table 4-11 shows SRK’s Valuation of the Jogjakarta Iron Sands Joint Venture.

Table 4-11: SRK Jogja JV Valuation

4.3.1 Sensitivity Analysis

SRK has conducted a Sensitivity Analysis on the Jogja JV Valuation the results of which are shown

below.

Iron Sands Valuation Discount Rate NPV

% US$M

Upper Valuation 6.38% $90.2

Preferred Value 7.38% $78.2

Lower Valuation 8.38% $67.4

Iron Sands & Pig Iron Valuation % US$M

Upper Valuation 6.38% $1,378.5

Preferred Value 7.38% $1,175.4

Lower Valuation 8.38% $1,003.8

Probability Weighted Valuation: Upper Valuation Probability Weighted Valuation

US$M % US$M





Probability Weighted Valuation: Preferred Valuation Probability Weighted Valuation

US$M % US$M





Probability Weighted Valuation: Lower Valuation Probability Weighted Valuation

US$M % US$M





SRK Valuation for the Jogja JV NPV

US$M

Upper Valuation $338.8

Preferred Value $289.9

Lower Valuation $247.9



Table 4-12: Sensitivity Analysis

Figure 4-1: Sensitivity Analysis

Variance OPEX CAPEX Revenue

25% $78.2 $234.6 $624.7

20.0% $120.7 $245.6 $557.7

15.0% $163.1 $256.7 $490.8

10.0% $205.4 $267.7 $423.8

5.0% $247.7 $278.8 $356.8

0.0% $289.9 $289.9 $289.9

-5.0% $332.0 $300.9 $222.9

-10.0% $374.0 $312.0 $155.9

-15.0% $415.9 $323.0 $88.9

-20.0% $457.8 $334.1 $21.9

-25.0% $499.6 $345.2 ($45.1)

($200.0)

$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Ne

t P

rese

nt

Val

ue

US$

M

Percentage Variance

Sensitivity Analysis

OPEX CAPEX Revenue




SRK Project Number IML001

Prepared by

Anthony Stepcich

Principal Consultant (Project Evaluations)

Reviewed by

Mike Warren

Corporate Consultant (Project Evaluations)

All data used as source material plus the text, tables, figures, and attachments of this document

have been reviewed and prepared in accordance with generally accepted professional engineering

and environmental practices.

SRK Consulting Distribution Record


SRK Report Client Distribution Record

Project Number: IML001

Date Issued: 26 September 2012

Name/Title Company

Stacey Apostolou Indo Mines Limited

Rev No. Date Revised By Revision Details

0 17 September 2012 Anthony Stepcich Draft Report to Client

1 25 September 2012 Anthony Stepcich Amended Draft Report to client

2 26 September 2012 Anthony Stepcich Final Report to client

This Report is protected by copyright vested in SRK Consulting (Australasia) Pty Ltd. It may not be

reproduced or transmitted in any form or by any means whatsoever to any person without the written

permission of the copyright holder, SRK.

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